Answer to Question #158981 in Microeconomics for Muzzamil abbas

Question

Q.1. Spinach and Corn Roti are often eaten together, they are complements.

a. We observe that both the equilibrium price of spinach and the equilibrium quantity of Corn Roti have risen. What could be responsible for this pattern-a fall in the price of corn flour or a fall in the price of spinach leaves? Illustrate and explain your answer. b. Suppose instead that the equilibrium price of spinach has risen but the equilibrium quantity of

corn roti has fallen. What could be responsible for this pattern- a rise in the price of corn flour or a

rise in the price of spinach leaves? Illustrate and explain your answer.

Answer 1

a)For complementary goods,the joint demand nature causes an interplay between the consumer need for the goods.As the price of spinach rises, the price of Corn Rotini also rises thus the change in their equlibriums.

b) The connection of complementary goods is called negative cross-elasticity of demand. So, as the cost of a corn increases, the user's demand for spinach decreases as consumers are unlikely to use the complement product alone. Further, as consumer demand weakens, the market price of the complementary good or service may fall.