Answer to Question #246803 in Microeconomics for nic

Question

Ketchup is a complement (as well as condiment) for hotdogs. If the price of hotdogs rises, what happens to the market for ketchup? For tomato juice? For orange juice?

Answer 1

If the price of hotdogs rises, the quantity demanded for hotdogs will fall and this will lead to decline in quantity demanded for ketchup since it’s a compliment for hot dogs. The equilibrium price and quantity of ketchup will decline. Since the quantity of ketchup will fall, the demand for tomatoes by producers of ketchup will also fall and this will lead to decrease in equilibrium price and quantity of tomatoes. The producers of tomato juice will face a fall in input prices and thus the supply of tomato juice will rise. This fall in the price of tomato juice will lead to people substituting from orange juice to tomato juice and the demand for orange juice will decline thus lowering its equilibrium price and quantity.