Bagels and cream cheese are complements. We observe that both the equilibrium price of cream cheese...

Bagels and cream cheese are complements. We observe that both the equilibrium price of cream cheese and the equilibrium quantity of bagelshave risen.

What could be responsible for this pattern—a fall in the price of flour (Input of bagel) or a fall in the price of milk (Input of cream cheese)?Explain your answer.

Expert Solution

Responsible for this pattern:

A fall in the price of flour :

1.Since flour is an ingredient in bagels, the supply curve for bagels would shift to the right.

2.A fall in the price of bagels and a rise in the equilibrium quantity of bagels.

3.Price and demand of cream cheese increase.

Possible ans. Fig 1 of the uploaded image.

A fall in the price of milk :

1.Since milk is an ingredient in the cream cheese, a fall in the price of milk will lead to an increase in the supply of cream cheese.

2.Decrease in the price of cream cheese.

possible ans. Fig 2 of the uploaded image.

Rahul Sunny answered 2 years ago

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