Answer to Question #266849 in Microeconomics for argho

Question

Suppose Burger and Fries are complementary goods to a consumer. Now if the price of Burger increases (everything else stays the same) then what will happen to the equilibrium price and quantity of Fries. Explain using a diagram.

Answer 1

Burger is a complement to Fries. An increase in price of burger (Y) will result in a negative movement along the demand curve of burger and cause an leftward shift in the demand curve for Fries(X). Thus, less of each good will be demanded. The graph below gives an illustration of the same:

The goods exhibit a negative cross elasticity of demand i.e. as the price of burger increases, the demand for fries falls.