Question

Consider the market for mobile applications, smartphones, and conventional phones. For each pair, identify whether they are complements or substitutes:
Pairs of Goods and Services Complements Substitutes
Mobile applications and smartphones
Mobile applications and conventional phones
Smartphones and conventional phones

Answer 1

Answer:

Mobile Applications and Smart Phones are Complements

Smart Phones and Conventional Phones are Substitutes

Mobile Applications and Conventional Phones are substitutes.

Explanation:

Complement goods are goods that can be used or consumed together. E.g. car and gas. A car would not work without gas. A rise in price of a good leads to a fall in demand of the complement good.

Subsituite goods rival one another in consumption. They can be used in place of another good.

A rise in price of a good leads to a rise in demand of the other good.

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