Question

There are many bizarre examples of complements and substitutes in the real world. For example, in
my home ketchup and Kraft macaroni and cheese are complements (everyone else here puts ketchup
on their mac and cheese, which concerns me!).
a. Come up with two bizarre/odd real-world examples of a pair of goods that are complements.
Explain why they are complements.
b. Choose one of those pairs of complements. Draw a consumer’s demand curve for each good (so
two graphs). Suppose the price drops for one of those goods (I don’t care which one, you choose).
What happens in that graph? What happens to the demand for the other complementary good?
Explain.
c. Come up with two real-world examples of a pair of substitutes. Explain how they are substitutes.
d. Choose one of those pairs of substitutes. Draw a consumer’s demand curve for each good (so two
graphs). Suppose the price drops for one of those goods (I don’t care which one, you choose).
What happens in that graph? What happens to the demand for the other good? Explain.

Answer 1

A. Complementary goods-

1. Movies and Popcorn (People generally consume popcorn while watching movies/videos etc)

2. Mobile phone and Phone charger ( People use phone charger to charge their mobile phones)

B.

Mobile phones and Phone charger

If the price of mobiles falls, people will demand more mobiles and in order to charge those mobiles, phone chargers will also be demanded more.

So Demand for phone charger will rise.

C. Substitute goods

1. HP Laptop and Lenovo Laptop ( These are substitute goods because due to their similarity in function, people cam substitute one for another)

2. Burger king Chicken Burger and Mc Donald's Chicken Burger (Both Chicken burgers shares similar ingredients which allows people to substitute one for another)

d. A fall in the price of HP laptops leads to rise in demand for HP laptops and fall in demand for Lenovo laptops. As consumers shift from Lenovo to HP.

So demand for Lenovo laptops falls.