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Two goods are complements if: (Please select correct answer) A) An increase in the price of one leads to a shift to the left in the demand curve for the other B) An increase in the price of one leads to an increase in demand for the other C) An increase in the price of one will increase the supply of the other D) A fall in the price of one leads to a reduction in supply for the other
Two goods are complements if: (Please select correct answer)
A) An increase in the price of one leads to a shift to the left in the demand curve for the other
B) An increase in the price of one leads to an increase in demand for the other
C) An increase in the price of one will increase the supply of the other
D) A fall in the price of one leads to a reduction in supply for the other
Expert Solution
Two goods are known as complements when they have negative cross elasticity of demand. This means that the demand of the complement good increases when price of the good decreases.
For instance: Bread and butter can be described as complements.Thus, when there is an increase in price of bread, the demand curve for the complement good i.e butter shifts to the left. Demand curve shifting leftwards means the demand for the commodity decreases.
Therefore, the answer is A.
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