Each of the following questions describes a change in one or more markets and as

Question

Each of the following questions describes a change in one or more markets and asks how these changes affect other markets. Your response should include which curves (supply, demand, or both) shift, in what direction, and what the result is for equilibrium price and quantity. Please include at least one graph for each part.
(a) We want to study the interactions in the market for Paper, Pens, and Pencils. Pens and Pencils are substitutes for each other, and Paper is a complementary good for both Pens and Pencils. Assume all three goods have upward sloping supply curves and downward sloping demand curves. Assume that each of the described changes is the only change that occurs (e.g., the change described in (i) is not continued into (ii)).
i. The price of Paper rises. What happens in the markets for Pens and Pencils?

Explanation / Answer

i. The price of a complement (paper) rises. Thus, the demand for pens and pencils will fall. This will lead to a decrease in price and quantity equilibrium. Hope this helped! :)

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