Question

A recent study found that an increase in the federal tax on beer (which would increase the price of beer) would reduce the demand for marijuana. Based on this information we can conclude that
A. Marijuana is an inferior good.
B. Beer and marijuana are substitute goods.
C. Beer and marijuana are complementary goods.
D. Beer is an inferior good.

Answer 1

Answer:

C. Beer and Marijuana are complementary goods

Explanation:

Since an increase in the price of beer is reducing the demand for marijuana this means that people were buying both at a time, now that the price of beer is higher they cannot afford both so are buying beer only. Therefore we can say that Beer and Marijuana are complementary goods.

If the increase in beer price led to an increase in Marijuana demand, then that would make them substitute goods since people are substituting one vice for another cheaper one.

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