Question

If consumers often purchase muffins to eat while they drink their lattés at local coffee shops, what would happen to the equilibrium price and quantity of lattés if the price of muffins rises? a) Both the equilibrium price and quantity would increase. b) Both the equilibrium price and quantity would decrease. c) The equilibrium price would increase, and the equilibrium quantity would decrease. d) The equilibrium price would decrease, and the equilibrium quantity would increase

Answer 1

Answer: The answer is "b) Both the equilibrium price and quantity would decrease."

Explanation: In this case the goods are known as "complementary" which are those that must be used in conjunction with another in order to satisfy a consumer's need.

The relation of the complementary goods is negative, that is to say, the demand of one reacts in reverse to a change in the price of another.

For example, if the price of muffins increases, the demand for coffee will decrease. If the price of muffins decreases, the demand for coffee will increase.

In this case, if the price of muffins increases, there is a decrease in the demand for coffee and as a consequence the price falls, establishing a new amount of equilibrium.