Good ‘Y’ is the substitute for good ‘X’ if 1. A fall in the price of good X leads to the fall in the marginal utility of good Y. 2. A fall in the price of good X leads to the fall in the quantity purchased of good Y. Select the correct answer

The correct answer is: Neither 1 nor 2

Goods are substitutes if they can be used in place of each other to satisfy the same need. For example, coffee and tea are substitutes, as they can both be used to satisfy the need for a hot beverage.

If the price of good X falls, then consumers will tend to buy more of good X. This is because good X is now relatively cheaper than it was before, so consumers will have more incentive to buy it. If good Y is a substitute for good X, then this means that consumers will also tend to buy less of good Y. This is because good Y is now relatively more expensive than it was before, so consumers will have less incentive to buy it.

However, a fall in the price of good X does not necessarily lead to a fall in the marginal utility of good Y. The marginal utility of a good is the additional satisfaction that a consumer gets from consuming one more unit of that good. The marginal utility of a good can fall for a number of reasons, including a decrease in the consumer’s income, an increase in the price of the good, or a decrease in the consumer’s taste for the good.

Therefore, the correct answer is: Neither 1 nor 2.