Question

How does a decrease in the price of smart phones affect the demand for headphones? It...

How does a decrease in the price of smart phones affect the demand for headphones?

It will likely increase a demand for headphones.

It will likely decrease a demand for headphones.

It will likely increase a supply of headphones.

It should not have any effect on the headphone market.

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Answer #1


Smartphones and headphones are complementary goods.

In case of complementary goods, there exist an inverse relationship between the demand for the good and the price of its complement.

When price of the complementary good increases, demand for the given good decreases. On the other hand, when price of the complementary good decreases, demand for the given good increases.

Since, smartphones and headphones are complementary goods, a decrease in the price of smart phones will lead to an increase in the demand for headphones.

Hence, the correct answer is the option (1) [It will likely increase a demand for headphones].

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