In microeconomics, an increase in the price of product A will most likely have what effect on demand for related products?

Introduction / Context:
Microeconomics studies how the price of one product affects the demand for related products. Two important categories of related goods are substitutes and complements. Substitutes are goods that satisfy similar needs, such as tea and coffee, while complements are goods that are often consumed together, such as printers and ink cartridges. This question asks you to apply these concepts and predict what happens to the demand for a substitute when the price of product A increases.

Given Data / Assumptions:
- Product A has substitute product B and complementary product C. - The price of product A increases. - We consider demand for resources, substitutes and complements. - We assume other factors such as incomes and tastes remain constant in the short run.

Concept / Approach:
When the price of a good rises, the law of demand tells us that, all else equal, the quantity demanded of that good will fall. Consumers will either buy less of the good or switch to alternatives. If a close substitute exists, many buyers will switch to it, increasing its demand. Thus, an increase in the price of product A tends to increase the demand for substitute product B. On the other hand, complements are goods that are used together. If product C is a complement to A, a higher price for A reduces the quantity of A demanded, which in turn reduces demand for C. In resource markets, a higher price for the output often increases, rather than reduces, the demand for inputs, because producers have an incentive to expand supply.

Step-by-Step Solution:
Step 1: Identify B as a substitute for A. When two goods are substitutes, consumers can switch from one to the other based on price. Step 2: Recognise that a higher price for A makes it relatively more expensive compared with B, creating an incentive to buy more of B. Step 3: Understand that the demand curve for B will shift to the right as some former buyers of A switch to B. Step 4: Conclude that the correct description is that demand for substitute product B increases when the price of product A rises.

Verification / Alternative check:
Use a real life example. Suppose A is coffee and B is tea. If the price of coffee suddenly rises, some coffee drinkers will decide to buy tea instead. Demand for tea increases, shifting the tea demand curve to the right. For complements, if A is a smartphone and C is a proprietary charger, a large increase in smartphone prices will reduce sales of phones and therefore reduce demand for chargers. This confirms that the effect described in the correct option is consistent with standard examples, while the other options do not match typical market behaviour.

Why Other Options Are Wrong:
Reduce demand for resources used in production of A: In the short run, a higher output price tends to increase, not reduce, the derived demand for inputs, as firms want to produce more. Reduce demand for substitute B: This contradicts the basic logic that consumers switch to substitutes when the original good becomes more expensive. Increase demand for complementary product C: If A and C are complements, a higher price for A reduces its quantity demanded and therefore reduces demand for C.

Common Pitfalls:
A frequent mistake is confusing substitutes and complements. Remember that substitutes move in the same direction as each other: when the price of one goes up, demand for the other goes up. Complements move in opposite directions: a higher price for one reduces demand for the other. Another pitfall is to think only about the demand for A and forget about cross price relationships. In exam questions, pay attention to whether the other good is described as a substitute or a complement and then apply the appropriate cross price demand rule.

Final Answer:
The correct option is Increase the demand for substitute product B that can replace A, because a higher price for product A makes the substitute more attractive, shifting demand toward B.