Question

EC101 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.) Price Market for Doll Houses $30 Do 320 Quantity (in thousands) a. Using the graph above, illustrate how the increase in the price of dolls will affect the market for doll houses.

Part B.) Once the market reaches a new equilibirum, is the new equilibrium price higher, lower, or the same as the equlibirum price prior to the change? Or is the directional change of the price unknown?

Answer 1

Ans) Complementary goods are those which are consumed together. If price of one good increases, demand for other decreases.

Here, if the price of doll will increase, demand for doll house will decrease. As a result, demand curve will shift to the left.

With increase in price of doll, supply for doll house will decrease as selling doll will be more profitable. Supply curve will shift to the left.

As effect on supply side is less than demand side, both price will and quantity will decrease. New equilibrium point will be lower than original equilibrium point.

EC101 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.) Price Market for Doll Houses new equilibrium $30 320 Quantity (in thousands) a. Using the graph above, illustrate how the increase in the price of dolls will affect the market for doll houses.

EC101 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.) Price Market for Doll Houses new equilibrium $30 320 Quantity (in thousands) a. Using the graph above, illustrate how the increase in the price of dolls will affect the market for doll houses.