Answer to Question #189692 in Microeconomics for Kinita Jefferson

Question

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X.

 

A decrease in the price of a product that is a complement to X will

Answer 1

Solution:

A decrease in the price of a product that is a compliment to X will cause the following:

Increase D (Demand for X), increase S (Supply for X) increase P (equilibrium price for X) and increase Q (equilibrium quantity for X).

 

This is because a complimentary good adds value to another product (X). That is, they are two goods that the consumer uses together. Therefore, when the price of a complementary product falls, the demand for the other product will increase (X). An increase in demand, all other constant, will cause the equilibrium price and quantity to rise and the quantity supplied will increase.