Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 4 - Part II - The Market Forces of Supply and Demand - Questions for Review: 8

Answer

Increase in the price of a good is a positive incentive for suppliers. In this case, when the price of the beer is increased, the supply of pizza would tend to increase, demand would tend to decrease. As a result, the quantity supplied would increase, the quantity demanded would decrease at the same price, that is the price would remain same.

Work Step by Step

To understand it clearly, let's understand the following facts about complementary goods: * Increase in price of a good is a positive incentive for suppliers, hence they would want to supply more quantity at the increased price. It would result in the increased supply. * When the price of a good increase, its demand decreases. Hence the demanded quantity would decrease too. * Price fluctuations of a good affects the demand and supply of a complementary good the same way it does to the original good. It means that the price increment of beer would affect the demand and the supply of pizza the same way as it does to beer. Hence, based on the above three points following could be said about the pizza: Demand - decrease Quantity demanded - decrease Supply - increase Quantity supplied - increase Price - remain same.
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