📚 Learning Guide
Elasticity in Market Dynamics
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How does the presence of substitutes and complements affect market equilibrium in terms of elasticity?

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Learning Path

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Choose the Best Answer

A

Substitutes increase demand elasticity, while complements decrease it.

B

Both substitutes and complements have no effect on market equilibrium.

C

Substitutes decrease demand elasticity, while complements have no effect.

D

Substitutes decrease market equilibrium price, while complements increase it.

Understanding the Answer

Let's break down why this is correct

Answer

In economics, substitutes and complements are important concepts that affect how much people buy and sell products. Substitutes are products that can replace each other, like butter and margarine. If the price of butter goes up, people might buy more margarine instead, which shows that the demand for margarine is elastic because it changes a lot with price changes. On the other hand, complements are products that are used together, like coffee and sugar. If the price of coffee rises, people will buy less coffee and, as a result, also buy less sugar, demonstrating that the demand for sugar is less elastic because it depends on the demand for coffee.

Detailed Explanation

Substitutes are products that can replace each other. Other options are incorrect because This answer suggests that substitutes and complements don't matter at all; This choice says substitutes make demand less elastic, which is not true.

Key Concepts

substitutes and complements
market equilibrium
Topic

Elasticity in Market Dynamics

Difficulty

medium level question

Cognitive Level

understand

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