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1. Consider the demand for Tesla. If the price of a fully electric Mercedes increases and...

1. Consider the demand for Tesla. If the price of a fully electric Mercedes increases and the price of a complement good (electricity) increases, can you tell for sure what will happen to the demand Tesla’s? Why or why not? Illustrate your answer with a graph.
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Answer #1

Price of its rival product (substitute) has risen. This will increase the demand for Tesla because it is now relatively cheaper. At the same time, there is an increase in price of its complement (electricity). Due to this, the demand for Tesla decreases.

In the figure, demand curve shifts right to show the effect of expensive substitute and then the demand curve shifts to the left to show the effect of expensive complement

Finally there will be no change in the market equilibrium (assuming that demand shifts are equal in size)

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