Answer to Question #180212 in Microeconomics for nida shaikh

Question

explain and show the effect of equilibrium price and quantity of split AC when price of DC-inverter decreases.

Answer 1

DC-inverter is a complementary good to split AC because one requires the other to function. When the price of DC-inverter decreases while the price of split AC remains constant, the demand of DC-inverter increases because it becomes affordable to consume. This will lead to less supply of the commodity. A decrease in supply leads to less competition among the sellers. The price of the DC-inverter therefore, starts to increase. Increase in price will lead to an increase in supply and a decrease in demand. These changes will occur and continue till supply and demand become equal at a new equilibrium price. Both equilibrium price and equilibrium quantity will rise since there is an increase in demand only.