Question

Wine and cheese are complement goods because they are consumed together. What would you expect to happen to the equilibrium quantity of cheese if the price of wine increased and all else is held constant?

A. It would increase because of a supply shift
B. It would increase because of a demand shift
C. It would be ambiguous because of a double shift (in both demand and supply).
D It would decrease because of a supply shift
E. It would decrease because of a demand shift

Answer 1

The correct answer is option E.

Step-by-step explanation:

Wine and cheese are complimentary goods, i.e they are consumed together. Complementary goods have a negative price elasticity. This means that when the price of one commodity increases the demand for its complement decreases.

Here, wine and cheese are complements. When the price of wine increases its demand will decrease. Since cheese is consumed with wine its demand will also decline. The equilibrium quantity will decline because of the leftward shift in the demand curve.