Suppose consumers consider bagels and cream cheese to be complementary goods. Wh

Question

Suppose consumers consider bagels and cream cheese to be complementary goods. Which of the events below will cause a rise in both the quantity sold of bagels and the price of cream cheese? a) The price of milk rises b) The price of milk falls 26. c) The price of flour falls. d) The price of flour rises. Suppose consumers consider bagels and cream cheese to be substitute goods. Which of the events below will cause a rise in both the quantity sold of bagels and the price of cream cheese? a) The price of milk rises b) The price of milk falls 27. c) The price of flour falls. d) The price of flour rises. 28. n a competitive market the price of a good rises as the quantity sold falls. This could have been caused by a rise in the price of a) a substitute good b) an alternative good in production. c) a jointly produced good in production d) a complementary good In a market for a normal good average household income rises and the price of an intermediate good used in production falls. We would expect: a) the equilibrium price of this good to rise, but we cannot predict what will happen to the quantity sold b) the quantity sold of this good to fall, but we cannot predict what will happen to the equilibrium price. c) the quantity sold of this good to rise, but we cannot predict what will happen to the equilibrium price d) the equilibrium price of this good to fall, but we cannot predict what ill happen to the quantity sold 29.

Explanation / Answer

26. C

Explanation: When the price of floor falls, the price of bagels will also fall. As a result, people will demand more bagels. Now, since cream cheese is a complementary good, higher demand for bagels will also increase demand for cream cheese. The higher demand for cream cheese will increase the price of cream cheese.

27. A

Explanation: When the price of milk rises, the price of cream cheese will also increase. With the higher price of cream cheese, consumers will shift to bagels as the bagel is a substitute. So, the quantity of bagels sold will increase.

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