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Chapter 3: Q. 6- Problems (page 72)

For each of the following shifts in the demand curve and associated price change of complement or substitute item, explain whether the price of the complement or substitute must have increased or decreased.

a.Arise in the demand for a dashboard global positioning-system device follows a change in the price of automobiles, which are complements.

b.A fall in the demand fore-book readers follows a change in the price of e-books, which are complements.

c.Arise in the demand for tablet devices follows a change in the price of ultrathin laptop computers, which are substitutes.

d.A fall in the demand for physical books follows a change in the price of e-books, which are substitutes.

Short Answer

Expert verified

a. Increases

b. Decreases

c. Decreases

d. Increases

Step by step solution

01

Step1. Introduction

When a good is consumed along with another, it is called complementary goods. The rise in demand of one would directly and positively affect the demand of other and vice versa.

Eg. shoes and socks.


When a good can be consumed in place of another, they are called substitutes of eachother. This rise in demand of one would negatively affect the demand of other.

Eg. Coke and Pepsi.

02

Step2. Explanation

a. Increases, since a rise in demand of a complement good, will also increase its own demand, thus the price increases.

b. Decreases, fall in demand of a complement good leads to reduction in prices of the other good.

c. Decreases, since the demand of substitute rises, our demand falls and thus price falls too.

d. Increases, since the demand of substitute falls, our demand increases and thus price rises too.

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Most popular questions from this chapter

Assume that the cost of aluminum used by soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for soft drinks distributed in aluminum cans? (More than one statement may be correct.)

a. The demand for soft drinks decreases.

b. The quantity of soft drinks demanded decreases.

c. The supply of soft drinks decreases.

d.The quantity of soft drinks supplied decreases.

Identify which of the following would generate a decrease in the market demand fore-book readers, which are a normal good.

a. An increase in the price of downloadable apps utilized to enhance the thee-book reading experience, which are complements.
b. An increase in the number of consumers in the market fore-book readers.

c. A decrease in the price of tablet devices, which are substitutes.

d. Areduction in the incomes of consumers of e-book readers.

Suppose that inalater market period,the quantities

supplied in the table in Problem 3-1 are unchanged.

The amount demanded,however,has increased by 30

million at each price.Construct the resulting demand

curve in the illustration you made for Problem 3-1.Is

this an increase or a decrease in demand? What are

the new equilibrium quantity and the new market

price?Give two examples of changes in ceteris paribus

conditions that might cause suchachange.

What do you suppose has happened to the positions of the supply curves in the markets for commodities such as almonds,apples,cotton,oranges,grapes,lemons,rice,and walnuts?

What has happened to the position of the U.S. market demand curve for

chewing gum?Explain briefly.
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