good y is a substitute of good x the price of y falls. expalin the chain effect of this change in the market of x?

 

·      The equilibrium price and quantity are likely to increase if there is an increase in the price of a substitute (Y) of Good X. Changes in the price of one substitute good tends to change the demand for another substitute good.

·      The demand for Good X is likely to decrease due a fall in the price of Good Y. This situation causes a decrease in the price of Good X due to excessive supply at the old equilibrium price. This leads to competition among the sellers which reduces the prices. Decrease in price leads to rise in demand and fall in supply. These changes continue till the new equilibrium is achieved. Therefore, the equilibrium price falls to OP₁, and the equilibrium quantity demanded falls to OQ₁.

·     If there is fall in the demand, the demand curve will shift towards the left to D1D1 and the supply curve SS will remain the same.