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"Jiffy peanut butter and Smucker's Strawberry jam are considered to be complementary goods. Show how an increase in the price of Jiffy peanut butter affects the demand for Smucker's Strawberry jam. When the price of a related good​ changes, this will result in:"

Respuesta :

Answer:

Inverse Relationship between demand of a good & its complementary good's price. Prise rise of peanut butter will reduce demand of strawberry jam.

Positive Relationship between demand of a good & its substitute good's price.

Explanation:

'Other goods price' is a factor affecting demand. These are substitute goods price & complementary goods price.

Complementary Goods are goods used together (eg- Jiffy peanut butter & Smucker's strawberry jam, here). These goods price & demand are inversely related.

  • Price rise of a complementary good (jiffy peanut butter) leads to fall in its own quantity demanded & so decrease in demand of its complement good (smucker's strawberry jam), because they are jointly demanded.
  • Also- Price fall of a complementary good leads to rise in its own quantity demanded & so decrease in complement's demand

Substitute goods are are goods that can be used interchangeably. Eg - Coke , Pepsi . Substitutes price & demand are positively related

  • Price rise of good makes it relatively expensive & decreases its demand.
  • Prise fall of good makes it relatively cheaper & increases its demand.

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