Substitutes and Complements

Everyone knows that raising the p of beef ill decrease the amount of beef demanded. We have seen that it will also affect the Cranach for other com modifies. For example. a higher price for beef will increase the demand for substitutes like chicken. A higher beef price may lower the demand for goods like hamburger buns and ketchup that are used along with beef hamburgers It will probably have little effect on the demand for economics. textbooks.

We say, therefore, that beef and chicken are substitute products. Goods A and B are substitutes if an increase in the price of good A will increase the demand for substitute good B. Hamburgers .and hamburger buns, or cars and gasoline, on the other hand, are’ complementary products; they are called complements because an increase e in the price-of good A causes a decrease in the demand for its complementary good B. In between are independent goods, such as beef and textbooks, for which a price change for one has no effect on the demand for the other.

Economics Seventeentn Edition

Economics Seventeentn Edition

FIGURE 5-3. Demand Curve Shifts with change in Income or in Other Goods’ Prices

As incomes in crease,consumers generally Baltimore of a  good, thus in creasing demand or, shifting demand outward (explain why higher incomes shift-DD to D’D’). Similarly,a rise in the price of a substitute good in creases or shifts out the demand curve (e.g., from DD to D’D’). Explain why a decrease-in income would generally shin demand to D”D”. Why would a decrease in chicken prices shift hamburger demand to D”D?”

Try classifying the pairs turkey and cranberry sauce, oil and coal, college. and textbooks, shoes and shoelaces, salt and shoelaces.

Say Figure 5-3 represented the demand for beef.A fall in the price of chickens play well cause consumers to buy less beef; the. beef demand curve , would therefore shift to the left. say.to D”D”. But what if the price of hamburger buns were to fall? The resulting change on DD, if there is.one, will be in the .direction of increased beef purchases, a rightward shift of the demand curve. Why do we see this difference in response? Because chicken is a rival or substitute product for beef, white hamburger ‘buns are complements to beef.

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