Answer to Question #24586 in Microeconomics for saad

Question

Silk shirts are comfortable and attractive, but so are cotton shirts. Assume that people wear one or the other (we'll ignore the possibility that people might layer their clothes, wearing one on top of the other). If the price of cotton shirts increases, in the market for silk shirts the likely effect would be:


A. P* up, Q* down


B. P* up, Q* up


C. P* down, Q* down


D. P* down, Q* up


E. A movement to the right along the demand curve.

Answer 1

B. P* up, Q* up
Changes in the price of a substitute or complement affect demand. Changes in the price of related goods change the demand for the other related goods. A change in the price of a substitute will cause an inverse change in demand for related products, whereas a change in the price of a complement will cause a direct change in demand for related products.