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Suppose spagetti and meatballs are complements. How will an increase in the price of spagetti affect...

Suppose spagetti and meatballs are complements. How will an increase in the price of spagetti affect the market for​ meatballs? A. Demand for spagetti will decrease causing the equilibrium price and quantity for meatballs to decrease. B. Supply for meatballs will decrease causing the equilibrium price and quantity for meatballs to decrease. C. Demand for meatballs will decrease causing the equilibrium price and quantity for meatballs to decrease. D. Demand for meatballs will increase causing the equilibrium price and quantity for meatballs to increase.

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Answer #1

Option A.

  • Complementary goods are those goods which complement each other and have negative Cross elasticity of demand. Which means that an increase in price of one good will lower the demand for both of the complementary goods and vice versa.
  • Here it is said that meatballs and spaghetti are complementary goods and an increase in the price of spaghetti will decrease the demand for it and move the demand curve to the left. At the same time the demand for meatballs also fall.
  • This will eventually cause the equilibrium price and quantity of meatballs to decrease.
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