Answer to Question #24584 in Microeconomics for saad

Question

Silk shirts are often worn with linen trousers. If the price of linen trousers drops, in the market for silk shirts the likely effect will be:


A. P* up, Q* down


B. P* up, Q* up


C. P* down, Q* down


D. P* down, Q* up


E. A movement to the left along the supply curve.

Answer 1

B. P* up, Q* up
Changes in the price of a substitute or complement affect demand. Changes in the price of related goods change the demand for the other related goods. A change in the price of a substitute will cause an inverse change in demand for related products, whereas a change in the price of a complement will cause a direct change in demand for related products.