Question

Consider the demand for hamburgers. If the price of a substitute good (for example, hot dogs) increases and the price of a complement good (for example, hamburger buns) increases, can you tell for sure what will happen to the demand for hamburgers? Why or why not?

Answer 1

Answer:

If the price of a substitute good increases;

Considering the demand for hamburgers, if the price of hot dogs for instance increases holding all other things constant ( ceteris paribus), the demand for hamburgers will increase. This is because hamburgers would be relatively cheaper compared to that of hot dogs.

If the price of a complimentary good increases;

Considering the demand for hamburgers, if the price of hamburger buns for instance increases holding all other things constant ( ceteris paribus), the demand for hamburgers will decrease. Demand for hamburgers will decrease because an increase in goods that have to be bought together will make the costs relatively higher, causing a decrease  in demand.

Explanation:

For goods that are complements,  if you purchase more (less) of one, you purchase more (less) of the other.

For goods that are substitutes,  if you purchase more (less) of one, you purchase less (more) of the other.