Answer to Question #98268 in Economics for Hashir

Question

Suppose you looking at two goods in a market, good A and good B. The price of A increases from P0 to P1, and as a result, the quantity demanded for good A decreases from Qa0 to Qa1, and the quantity demanded for good B also decreases from Qb0 to Qb1 as a result of an increase in price of good A. Show the scenario of an increase in price of A by drawing the demand graphs for good A and for good B separately. Are the two goods compliments or substitutes?

Answer 1

The two goods are compliments because the quantity demanded for both of them decreases as a result of increase of price for good A. Black lines are previous and current demand for A, red lines are levels of demand for B