Question 33 2 pts Lemonade and oatmeal cookies are complements. Supply curves fo

Question

Question 33 2 pts Lemonade and oatmeal cookies are complements. Supply curves for lemonade and oatmeal cookies are upward-sloping; demand curves for lemonade and oatmeal cookies are downward-sloping. Which of the following events could BOTH increase producer surplus in the lemonade market and decrease consumer surplus in the oatmeal cookie market? A mild winter results in an unusually large lemon harvest. An early frost destroys much of this year's oat crop. Both (a) and (b) are true. Neither (a) nor (b) is true.

Explanation / Answer

As the lemonade and the oatmeal cookie are complements an increase in the price of one good will decrease the demand for other good as well. AN increase in the price of the lemonade will increase the producer surplus in lemonade market i.e. an increase in the price of the lemonade. For this we need fewer lemons option 1 is wrong.

Consumer surplus will decrease in the market if the supply decrease in the oat market. Option 2 is right (till here). Because they are complements an increase in the price of the oats will decrease the demand for lemonade and cause a fall in lemonade decreasing the producer surplus.

The answer is "D", Neither A nor B is true.

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