Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Demand for both goods decreases
B
Demand for the complementary good increases due to the lower price of its partner
C
Demand for the complementary good remains unchanged
D
Demand for the complementary good decreases due to the lower price of its partner
Understanding the Answer
Let's break down why this is correct
Answer
When the price of one good decreases, it can lead to an increase in demand for complementary goods. Complementary goods are products that are often used together, like coffee and sugar. If the price of coffee drops, people might buy more coffee because it is cheaper. As a result, they will also buy more sugar since they typically use sugar in their coffee. This shows how the substitution effect works: the lower price of one good encourages people to buy it and its complementary good together, increasing demand for both.
Detailed Explanation
When the price of one good goes down, people buy more of it. Other options are incorrect because Some might think that if one good is cheaper, people will buy less of both; It's a common mistake to think that the demand stays the same.
Key Concepts
substitution effect
interdependence of goods
Topic
Complementary Goods and Demand
Difficulty
medium level question
Cognitive Level
understand
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