Answer to Question #175849 in Microeconomics for michele ford

Question

In the market for milk, Nesquik is considered as a complement product and Cremora as a substitute product.
4.3.1. Draw a graph to illustrate how a decrease in the price of Cremora will affect the equilibrium price and quantity in the market for milk. (6)
4.3.2. Explain how a change in the price of Nesquik can lead to the same effect in the market for milk as indicated in 4.3.1.

Answer 1

4.3.1. A decrease in the price of Cremora will decrease the demand for milk, as a result both the equilibrium price and quantity in the market for milk will decrease.

4.3.2. An increase in the price of Nesquik can lead to the same effect in the market for milk as indicated in 4.3.1., because it also can lead to decrease in demand for milk.