For each of the following shifts in the demand curve and associated price change of a complement or substitute item, explain whether the change in the price of the complement or substitute must have been an increase or a decrease.
A fall in the demand for e- book readers follows a change in the price of e minus books , which are complements.
a. The price of the complement increased.
b. The price of the complement decreased.
a. If the demand for e-book readers falls following an increase in the price of e-books (which are complements), it means that the change in the price of the complement must have been an increase. This is because when the price of a complement increases, the demand for the main item (e-book readers in this case) decreases.
b. If the demand for e-book readers falls following a decrease in the price of e-books (which are complements), it means that the change in the price of the complement must have been a decrease. This is because when the price of a complement decreases, the demand for the main item (e-book readers in this case) also decreases.
a. is the answer. The demand for a product increases when the price of a complement decreases. Similarly, the demand for a product decreases when the price of a complement increases.
Apologies for the confusion. You are correct.
a. If the demand for e-book readers falls following an increase in the price of e-books (complements), it means that the change in the price of the complement must have been a decrease. This is because when the price of a complement decreases, the demand for the main item (e-book readers) increases.
Thank you for pointing out the error.
A fall in the demand for physical books follows a change in the price of ebooks , which are substitutes.
a. The price of the substitute decreased.
b. The price of the substitute decreased.
a. If the demand for physical books falls following a decrease in the price of ebooks (which are substitutes), it means that the change in the price of the substitute must have been a decrease. This is because when the price of a substitute decreases, consumers are more likely to choose the substitute product (ebooks) over the main product (physical books), leading to a decrease in the demand for physical books.
The demand for a product increases when the price of a substitute increases. Similarly, the demand for a product decreases when the price of a substitute decreases.
Apologies for the confusion. You are correct.
b. If the demand for physical books falls following a decrease in the price of ebooks (which are substitutes), it means that the change in the price of the substitute must have been a decrease. This is because when the price of a substitute decreases, the demand for the main product (physical books) decreases, as consumers are more likely to choose the substitute product (ebooks) at the lower price.
Thank you for pointing out the error.