Question

8. Suppose demand for beef decreases and demand for leather stays the same. What happens to...

8. Suppose demand for beef decreases and demand for leather stays the same. What happens to the price of leather? Explain your answer.

Homework Answers

Answer #1

Beef and leather are complements in production.

A fall in the demand for beef will lead to a fall in the price as well as quantity sold of beef in the market.

This implies, a decrease in the price of beef decreases the slaughter of cows, thereby decreasing the supply of leather.

As a result, in the leather market, keeping demand unchanged, a decrease in the supply of leather will shift the supply curve of leather to the left, leading to an increase in the price of leather and fall in its quantity sold in the market.

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