Question

Show the market for Meatballs in equilibrium. Then show and discuss the effects on P∗, Q∗...

Show the market for Meatballs in equilibrium. Then show and discuss the effects on P∗, Q∗ of an increase in the prices of both spaghetti and Italian sausage.

No data to show: this is supposed to be solved without using any data.

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Answer #1

Considering that meatball is compliment to both spaghetti and italian sausage, as both are served with meatballs, we can say that both spaghetti - meatballs and italian sausage - meatballs are complement goods. If price of both spaghetti and italian sausage increases, their demand would decrease, and that would decrease the demand for meatballs. The graph is as below.

As can be seen, the demand decreases, and the demand curve shifts to left reflecting the fact that lesser quantity is demanded at the same price as before. As that happens, equilibrium shifts from E to E'. At E', the equilibrium price and quantity both are less than before at E.

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