Question

Beer and pizza are complements because they are often enjoyed together. When the price of beer rises, what happens to the supply, demand, quantity supplied, quantity demanded, and the price in the market for pizza?

Answer 1

Beer and pizza are complements because they are often enjoyed together. Complementary goods are those goods which increase in the price of one good reduces the demand for its complement. When the price of beer rises the demand for pizza falls. This can be shown in the following figure;

In the above figure x-axis shows quantity and y -axis shows price. D is the demand curve S is the supply curve. E is the initial equilibrium point. When the price of beer rises the demand for pizza falls, the demand curve shifts to the left. The price reduces from p to p1 and quantity also reduces from q to q1.(Both the quantity demanded and quantity supplied reduces).