Goods 1 and 2 are complements When the supply of good 1 increases, which of the
ID: 1226747 • Letter: G
Question
Goods 1 and 2 are complements When the supply of good 1 increases, which of the following will occur after all feedback effects have worked themselves out in a general equilibrium analysis?
A. The price of good 1 will decrease, the demand for good 2 will decrease, the price of good 2 will decrease, and the demand for good 1 will decrease.
B. The price of good 1 will increase, the demand for good 2 will decrease, the price of good 2 will decrease, and the demand for good 1 will increase.
C. The price of good 1 will decrease, the demand for good 2 will increase, the price of good 2 will increase, and the demand for good 1 will decrease.
D. The price of good 1 will increase, the demand for good 2 will increase, the price of good 2 will increase, and the demand for good 1 will increase.
Explanation / Answer
Answer : Option C is correct.Complementary goods are those goods which are used together for eg.Printer and Ink.If the supply of Printer will increase, the supply of printer will shift to right,and the price of printer will fall.Since there is a large supply of printer we will require ink,hence demand for ink will increase,again this will shift the demand curve for ink to right.Now what will happen ,when the demand of ink increases definetely the price of ink will increase.Ans since the goods are complementary in nature an increase in the price of ink will lead to decrease in the demand of printers.
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