If stone and brick are substitutes in home construction, what is likely to happen in a competitive market if the price of stone increases?

• A. The demand for brick will decrease.
• B. The demand for brick will increase.
• C. The supply of brick will decrease.
• D. The price of brick will decrease.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of substitute goods. Substitute goods are products that can replace each other in consumption. If the price of one good rises, consumers tend to buy more of the substitute good instead.
2. Step 2: Identify the goods in the problem: stone and brick are substitutes in home construction. This means if the price of stone increases, consumers will look for alternatives, such as brick.
3. Step 3: Analyze the effect of an increase in the price of stone. Since stone becomes more expensive, the quantity demanded for stone will decrease, and consumers will shift their demand towards brick.
4. Step 4: Determine the impact on the demand curve for brick. Because more consumers want brick as a substitute, the demand for brick will increase, shifting the demand curve for brick to the right.
5. Step 5: Recognize that this increase in demand for brick will likely lead to a higher equilibrium price and quantity for brick in the competitive market, assuming supply remains constant.