Answer to Question #137788 in Economics of Enterprise for MUHAMMAD ANEES

Question

What will happen to the equilibrium quantity and price of corn if the price of butter (a complement) increases and the price of fertilizer decreases?

Answer 1

Since corn and butter are consumed together, an increase in the price of butter would cause a decrease in the demand for corn. Hence, the demand curve of corn would shift to the left. On the other hand, a decrease in fertilizer prices would reduce the cost of production. Consequently, the supply of corn would increase, causing the supply curve to shift to the right. Therefore, the equilibrium price of corns would fall, but the equilibrium quantity would either decrease or increase.