IB International Economics Higher Level (HL) Practice Exam

When the price of a substitute good decreases, consumers will typically switch their purchasing preferences towards the now cheaper substitute. Substitute goods are those that can replace each other in consumption, such as butter and margarine.

If the price of the substitute good goes down, it makes the substitute more attractive to consumers, leading to a decline in demand for the original good. This is because consumers aim to maximize their utility by opting for the less expensive option. As a result, a decrease in the demand for the original good occurs, as people substitute it with the more affordable alternative.

The other outcomes suggested in the options do not account for the market dynamics in this situation. For instance, no change in demand would imply consumers remain indifferent despite the price change, which contradicts the typical consumer behavior theory. An increase in demand for the original good would suggest it becomes more desirable, which is unrealistic if a substitute becomes cheaper. Lastly, a change in supply rather than demand does not relate directly to a decrease in the substitute's price; supply typically responds to production costs and market conditions rather than consumer preferences directly.