Consider the demand for apples. If the prices of a substitute good(bananas) increases and the price...

Consider the demand for apples. If the prices of a substitute good(bananas) increases and the price of a complement good (apple pie) increases, can you tell for sure what will happen to the demand for apples? Why or why not? Illustrate your answer with a graph.

Expert Solution

No, we cannot surely tell what will happen to the demand for apples.

Substitute goods or substitutes are at least two products that could be used for the same purpose by the same consumers. If the price of one of the products rises or falls, then demand for the substitute goods or substitute good (if there is just one other) is likely to increase or decline. When the price of bananas rises, the demand for bananas decrease and the demand for it's substitute apples Increase.

A complementary good is one used in conjunction with another good or service. Such a good may have little value without itscomplement. When the price of a particulargood rises the demand for its complementdrops because consumers are unlikely to use the complement alone. Similarly when the price of apple pie Increases, the demand for apples decreases.

Thus, when this happens we cannot surely tell of the demand will increase considering both the effects or decrease.

NOTE: I HOPE YOU WILL BE SATISFIED WITH MY ANSWER PLEASE DO PROVIDE RATING. THANK YOU AND HAVE A NICE DAY. :))

Rahul Sunny answered 8 months ago

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