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4. Because bagels and cream cheese are eaten together, they are complements. Suppose the equilibrium price...

4. Because bagels and cream cheese are eaten together, they are complements. Suppose the equilibrium price of cream cheese rises at the same time quantity of bagels rises. Could a decrease in the price of flour (an input into bagels) or a decrease in the price of milk (an input into cream cheese) be responsible.

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Ans) Decrease in the price of flour will decrease the cost of production of bagels. So supply for bagels increase which implies the decline in equilibrium price of bagels. Since bagels and cream cheese are complements so the decline in price of bagels will increase the equilibrium price for cheese cream and increase in equilibrium quantity of bagels. A decrease in price of flour could be responsible for the effect.

Decrease in the price of milk will increase the supply for chesse cream. This will lead to a decrease in the equilibrium price of cheese cream. So fall in price of milk is not responsible.

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