Answer to Question #201755 in Economics of Enterprise for Ali Kilponen

Question

Suppose cheese and eggs are complements in consumption. An increase in the demand for cheese, everything else held constant, will cause the demand for eggs to _____ and the equilibrium price of eggs to _____.

Select one:

A.

increase; increase

B.

decrease; increase

C.

increase; decrease

D.

decrease; decrease

Answer 1

Answers is:

A. Increase; increase,

i.e. The demand for eggs will increase (shift to the right) from D to D₁; leading to increase in equilibrium price from P to p₂ as illustrated in a graph below: