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Chapter 3: Problem 7

Assuming steak and potatoes are complements, a decrease in the price of steak will a. decrease the demand for steak. b. increase the demand for steak. c. increase the demand for potatoes. d. decrease the demand for potatoes.

Short Answer

Expert verified
A decrease in the price of steak will increase the demand for potatoes.

Step by step solution

01

Understand Complements

Complementary goods are products that are often used together, such that the consumption of one enhances the consumption of the other. For example, steaks and potatoes are complements because people commonly consume them together.
02

Analyze the Effect of Price Change on Demand for Steak

A decrease in the price of steak typically leads to an increase in the quantity demanded of steak, assuming all other factors remain constant. This occurs because consumers are likely to buy more steak when it is cheaper.
03

Analyze the Effect on the Demand for Potatoes

As the quantity of steak demanded increases due to its lower price, the demand for its complement, potatoes, will also increase. This is because consumers will buy more potatoes to go along with the increased steak purchases.
04

Conclusion

Therefore, given that steak and potatoes are complements, a decrease in the price of steak leads to an increase in demand for potatoes, while it does not affect the demand for steak.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Complementary Goods
Complementary goods are products that are used together, enhancing each other's value. When the price of one complementary good falls, consumers often purchase more of it. This increased consumption typically leads to a higher demand for the complementary good as well. For instance, if you consider steak and potatoes, they are eaten together often.
When the price of steak decreases, people are likely to buy more steak. And when they buy more steak, they are more likely to purchase more potatoes too, since these goods complement each other.
  • This dynamic shows how changes in the economic environment around one good can directly affect its complement.
  • Businesses often bundle complementary goods due to this relationship.
Demand Analysis
Demand analysis involves understanding how various factors affect the quantity of a good that consumers are willing to purchase. One of these factors is the price of related goods, such as complements. If the price of a complementary good like steak falls, we anticipate an increase in the demand for its complement, which is potatoes in this case.
This analysis is crucial for businesses to make informed decisions about pricing strategies and marketing. Demand analysis helps them predict how consumers might react to changes in the market.
  • Looking at consumer purchases helps understand demand patterns.
  • Factors such as income, tastes, and prices of related goods influence demand.
Price Elasticity
Price elasticity measures how sensitive the quantity demanded of a good is to a change in its price. If steak's price drops, its demand might be elastic, meaning a small price decrease could lead to a large increase in quantity demanded. This concept also applies to complementary goods.
For complementary goods like steak and potatoes, the price elasticity also extends to how a change in the price of steak affects the demand for potatoes.
  • Goods with high price elasticity will see significant changes in demand with price fluctuations.
  • Understanding elasticity helps set pricing policies and predict consumer behavior.
Consumer Behavior
Consumer behavior examines how people decide to spend their money, including the economic factors that influence these decisions. The behavior is affected by price changes and the way these changes impact complementary goods. For instance, when the price of steak decreases, consumers might change their behavior by buying both more steak and more potatoes.
Understanding consumer behavior involves looking at the motivation behind purchasing decisions, like the pursuit of satisfaction and utility from consuming goods together.
  • Factors like social influence, marketing, and personal preferences affect consumer behavior.
  • Behavior analysis helps forecast demand and design better products and campaigns.

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Most popular questions from this chapter

If \(Q_{d}=\) quantity demanded and \(Q_{s}=\) quantity supplied at a given price, a shortage in the market results when a. \(Q_{\mathrm{s}}\) is greater than \(Q_{\mathrm{d}}\). b. \(Q_{s}\) equals \(Q_{d}\). \(\mathrm{c} .Q_{\mathrm{d}}\) is less than or equal to \(Q_{\mathrm{s}}\). d. \(Q_{\mathrm{d}}\) is greater than \(Q_{\mathrm{s}}\).

Which of the following is the result of a decrease in the price of tea, other things being equal? a. A leftward shift in the demand curve for tea b. \(A\) downward movement along the demand curve for tea c. A rightward shift in the demand curve for tea d. An upward movement along the demand curve for tea

The law of demand states that the quantity demanded of a good changes, other things being equal, when a. the price of the good changes. b. consumer income changes. c. the prices of other goods change. d. a change occurs in the quantities of other goods purchased.

An increase in consumer income, other things being equal, will a. shift the supply curve for a normal good to the right. b. cause an upward movement along the demand curve for an inferior good. c. shift the demand curve for an inferior good to the left. d. cause a downward movement along the supply curve for a normal good.

Assuming soybeans and tobacco can be grown on the same land, an increase in the price of tobacco, other things being equal, causes a (an) a. upward movement along the supply curve for soybeans. b. downward movement along the supply curve for soybeans. c. rightward shift in the supply curve for soybeans. d. leftward shift in the supply curve for soybeans.
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