Homework Answers
Coffee and sugar are complementary goods. Complementary goods are those goods which are consumed together and have inverse relationship that is if price of one complementary good increases, the demand for the other good decreases or if the price of one complementary good decreases, the demand for the other good increases.
Here. because coffee and sugar are complementary goods. an increase in the price of sugar will lead to a decrease in the demand for coffee. In other words, demand shifts to the left and price decreases. Due, to decrease in the demand for coffee, the demand curve shifts leftwards indicating a reduction in demand. Since, the supply is still the same, decrease in demand in relation to supply results in excess supply and due to this excess supply, the price decreases. So, the effect of rise in price of sugar on market for coffee is reduction or decrease in demand and decrease in price.
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