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Consider the demand for apples. If the prices of a substitute good(bananas) increases and the price...

Consider the demand for apples. If the prices of a substitute good(bananas) increases and the price of a complement good (apple pie) increases, can you tell for sure what will happen to the demand for apples? Why or why not? Illustrate your answer with a graph.

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Answer #1

1. Increase in price of substitute goods : When price of substitute goods(banana) rises, Demand for the apple also rises from Q to Q1 at its same price of P. It leads to a rightward shift in the Demand curve of its given commodity from DAD to DD1.

2. increase in the price of complement goods: When the price of complement good(apple pie) rises, Demand for the given commodity (apple) falls from Q to Q1, at the same price of P. As a result Demand curve of the given commodity shift to the left from DAD to DD1.

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