Answer to Question #249020 in Microeconomics for mshi

Question

3. Ketchup is a complement for hot dogs. If the price of hot dogs rises, what happens to the market for ketchup? For tomatoes? For tomato juice? For orange juice? [Hint: four market diagrams are to be drawn]

 

Answer 1

Ketchup is a complement for hot dogs. Thus, when the price of hot dogs rises, the quantity demanded of hot dogs declines, lowering the demand for ketchup. This causes a decline in both the equilibrium price and quantity of ketchup.

Because the quantity of ketchup falls, the demand for tomatoes by ketchup producers falls, so the equilibrium price and quantity of tomatoes fall.

When the price of tomatoes falls, producers of tomato juice face lower input prices, so the supply curve for tomato juice shifts out, causing the price of tomato juice to fall and the quantity of tomato juice to rise.

The fall in the price of tomato juice causes people to substitute tomato juice for orange juice, so the demand for

orange juice declines, causing the price and quantity of orange juice to fall.