Suppose new technology is introduced that reduces the cost of producing gasoline. Assume gasoline and SUVs...

Suppose new technology is introduced that reduces the cost of producing gasoline. Assume gasoline and SUVs are "complement goods." Which of the following statements is most likely to occur?

Group of answer choices

a.Supply of gasoline will decrease and demand for SUVs will increase

b.Supply of gasoline will increase and demand for SUVs will decrease

c.Supply of gasoline will increase and demand for SUVs will remain the same

d.Supply of gasoline will increase and demand for SUVs will increase

Solutions

Expert Solution

Complement goods are those goods which are used together to satisfy a need, therefore, when the cost of producing gasoline decreases it means the supply of gasoline will increase and the price of gasoline will decrease due to the increase in supply. So as the price of gasoline decreases, the demand for SUVs will increase as SUV uses the gasoline and it is cheaper to buy the gasoline now, therefore, the right answer is option D, that is, supply of gasoline will increase and the demand for SUVs will increase.

Rahul Sunny answered 2 years ago

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