Price Change Effects on Substitutes and Complements

Steps:

• Price of X rises, so demand for X falls per the law of demand.
• X substitutes for Y, so consumers switch to Y, raising demand for Y.
• X complements Z, so less X purchased means less Z needed, lowering demand for Z.
• Overall, demand shifts for Y (up) and Z (down), not just X.

Why D is correct:

• Substitutes show positive cross-price elasticity (price of X up raises demand for Y); complements show negative (price of X up lowers demand for Z).

Why the others are wrong:

• A: Ignores cross-effects on related goods Y and Z.
• B: Correct for Y but wrong for Z, which falls as a complement.
• C: Reverses definitions—substitutes increase demand, complements decrease it.

Final answer: D