Question

A. Explain the difference between the desire for a good and the economic demand for a good.

B. Hot dogs and hot dog buns are complementary goods. If the price of hot dogs falls, explain what is likely to happen to the demand for hot dog buns. Why is this the case?

C. Carrot cake is a substitute for spice cake. If the price of spice cake falls, explain what is likely to happen to the demand for carrot cake. Why is this the case?

Answer 1

A. The desire for the good is a want for a good that the consumer likes. It may or may not turn into a demand for a good due to factors like consumer's income and the price of the good.

The economic demand of a good is the quantity of a good demanded at a given price and income.

B. Since hot dogs and hot buns are complementary goods, a fall in the price of hot dogs will lead to a rise in the demand for hot buns, and thus the demand curve for hot buns would shift rightwards at the same price.

This happens because now it is cheaper for the consumer to buy hot dogs and hot buns together (he consumes them together since they are complementary). So he will buy more.

C. If carrot cake and spice cake are substitutes, then a fall in the price of spike cake will lead to a fall in demand for carrot cake and the demand curve would shift leftwards. This is because now it is cheaper to substitute carrot cake for spice cake after the fall in price.