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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

Distinguish between changes in supply and changes in quantity supplied

Consider the following diagram of a market for one-bedroom rental apartments in a college community.

a. At a rental rate of \(1,000 per month, is there an excess quantity supplied, or is there an excess quantity demanded? What is the amount of the excess quantity supplied or demanded?

b.If the present rental rate of one-bedroom apartments is\)1,000 per month, through what mechanism will the rental rate adjust to the equilibrium rental rate of\(800?

c.At a rental rate of\)600 per month, is there an excess quantity supplied, or is there an excess quantity demanded? What is the amount of the excess quantity supplied or demanded?

d.If the present rental rate of one-bedroom apartments is \(600 per month, through what mechanism will the rental rate adjust to the equilibrium rental rate of\)800?

Give an example of a complement and substitute in consumption for each of the following items.

a.Bacon

b.Tennis racquets

c.Coffee

d.Automobiles

Consider the market for paperbound economics textbooks. Explain whether the following events would cause an increase or a decrease in supply or an increase or a decrease in the quantity supplied.

a. The market price of paper increases.

b. The market price of economics textbooks increases.

c. The number of publishers of economics textbooks increases.

d. Publishers expect that the market price of economics textbooks will increase next month.

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.
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