Question

Due to higher demand for hand sanitizer in recent months, many beer-producing businesses are also starting to produce some hand sanitizer (which is a liquid,gel or foam used for killing germs by applying on hands and rubbing them together). Assume similar resources are used for production of both goods (i.e. beer and hand sanitizer) and the resources used remain constant.

(i) Are beer and hand sanitizer complements in this situation? Explain.
(ii) If the price of hand sanitizer falls, what is likely to happen to the supply of hand sanitizer, all else equal?
(iii) If the price of hand sanitizer falls, what is likely to happen to the supply of beer, all else equal?
(iv) If the price of hand sanitizer falls, how does the opportunity cost of producing beer change?
(v) if wages are higher, what is likely to happen to the supply of hand sanitizer, all else equal

Answer 1

a) No, beer and hand sanitizers are substitue in this moment.

b) If the price of hand sanitizer falls this will decrease the supply of sanitizer in the market.

c) As the resouces for beer are available cheaply this will make beer cheaper and increase the output.

d) At a lower price the opportunity cost of producing beer falls. as we have to give up cheaper goods to produce beer.

e) If the wages are higher the supply of hand sanitizer will be costlier and less than the previous equilibrium output.