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9. Assume that VCRs and videotapes are complements. When the price of VCRs fall and the...

9. Assume that VCRs and videotapes are complements. When the price of VCRs fall and the price of plastic (used to make videotapes) rise, what should happen to price and quantity of videotapes. What happens to equilibrium price and quantity? Illustrate using a graph.

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Answer #1

As VCRs and videotapes are complements to each other. When price of VCR falls and price of plastic rise which is an input to videotapes which will raise the price of videotapes. It will induce consumers to consume more of VCR and less of videotapes. As less of videotapes are demanded, equilibrium price and quantity fall due to backward shift in demand curve of videotapes.

On the other hand, equilibrium price and quantity of VCR rise due to rightward shift of demand curve.

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