Question

8. The following graph represents the market for doll houses. Suppose the price of dolls, which is a complement to doll houses decreased. Assume the effect on consumers is larger than the effect on suppliers, who produce both dolls and doll houses. (4 pts.) Market for Price Doll Houses So $30 Do 320 Quantity (in thousands) decsease Using the graph above, illustrate how the inerease-in the price of dolls will affect the a. market for doll houses.

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Answer 1

8) there is a decrease in the price of dolls. Dolls are a complement of doll houses. As the price of dolls fall, the demand increases, thereby increasing the demand for doll houses. The demand curve for doll houses therefor shifts outwards. The equilibrium price and quantity of doll houses increase.

9. Rubber is a raw material for making rubber ducks. As the price increases for rubber, the rubber duck's production cost increases. This reduces the supply of rubber ducks. The supply curve shifts leftwards. The equilibrium price increases but equilibrium quantity falls