ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 4, Problem 1.2P
To determine
Categorize the goods as substitute, complementary and unrelated goods.
Concept Introduction:
Substitute goods are those goods which can be used in place of each other. Increase in the price of one good implies the increase in the demand of other good and vice-versa.
Complement goods are those which can only be used together. We can’t use one good at a time. Increase in the price of one good implies the decrease in the demand of other good and vice-versa.
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2. Place the following goods and services into pairs of likely substitutes and pairs of likely complements. (You may use an item in more than one pair.)
The goods and services are: coal, oil, natural gas, wheat, corn, rye, pasta, pizza, sausage, skateboard, roller blades, video game, laptop, iPod, cell phone, text message, email, phone call, voice mail
1. Classify each pair of goods as substitutes, complements, or independent.
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Explain the general determinants in one paragraph.
GENERAL DETERMINANTS OF DEMAND• Good’s own price (P) is the key determinant of demand• Other determinants of demand:1. Level of income (Y) of the potential purchasers of the good or service.a. Normal good – a good in which an increase in income raises its sales.b. Inferior good – a good in which an increase in income causes a reduction in spending.2. Prices of related goodsa. Substitute good – a good in which can substitute for another good (competitor’sgood). An increase in the price of the substitute good or service causes an increase indemand for the another good.b. Complementary good – a good that complements with another good. That is, anincrease in demand for one causes an increase in demand for the other. An increase inthe price of a complementary good reduces demand for the another good.3. Population (number of consumers that consume goods/services)4. Tastes and preferences5. Consumer’s expectation towards future market…
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- Exercise 3. Tablets and laptops are substitutes. Due to manufacturer related issues, there is a deep shortage of tablet-specific parts. What would you expect to happen to the market (prices, supply, demand, quantity sold) shortly after the parts shortage in for each of the following products: Tablets? Laptops? You can answer each point above with a labeled graph or explain in words, taking into account the differences between a change in the demand (curve) and a change in quantity demanded.arrow_forwardUsing the table below:i. Calculate the cross-price elasticity of broccoli. ii. Are fish and broccoli complementary or substitute goods? Explain. Price of fish Quantity of fish Price of broccoli Quantity of broccoliPeriod 1 $7 8 lbs $4.50 10 lbsPeriod 2 $9 5 lbs $6.25 6 lbsarrow_forwardQUESTION 11 An increase in price of computers causes decrease in demand for software is an example of a. substitute goods b. inferior goods c. normal goods d. complements goodsarrow_forward
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