Substitute Goods and Demand Shifts

Steps:

• Recognize Y as a close substitute for X, so changes in Y's price affect X's demand.
• Recall that a price decrease for a substitute reduces demand for the original good.
• Determine this shifts X's demand curve leftward to D2, as consumers switch to cheaper Y.
• Match to option D, which describes the price decrease in Y.

Why D is correct:

• Per the cross-price elasticity of demand for substitutes, a lower price of Y decreases demand for X, shifting its curve left (law of demand for related goods).

Why the others are wrong:

• A: Lowers production costs for X, shifting its supply curve right, not demand.
• B: Raises Y's production costs, shifting Y's supply left and potentially increasing Y's price, which would boost X's demand (rightward shift).
• C: Higher Y price makes X more attractive, increasing X's demand (rightward shift).

Final answer: D