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Assume that a consumer purchases 2 goods, salami, S, and bread, B. Using indifference curve analysis,...

Assume that a consumer purchases 2 goods, salami, S, and bread, B. Using indifference curve analysis, show graphically and explain how a fall in the price of bread affects the demand for salami.   Based on your diagram does it appear that S and B are complements or substitutes?

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Answer #1

Complementary goods are goods that go together as bread and jam, bread and butter , bread and salami etc.A fall  in the price of bread leads to a increase  in the demand for bread and subsequently an increase  in the demand for salami as both bread and salami are complementary goods and one complements the other. The indifference curve for complementary good is negatively sloped.The preference moves from pt A to pt B. Bread and salami are complements.

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