Question

You like to have fresh flowers in your apartment. suppose the price of a bouquet of daisies falls from $15 to $10 but the price of a bouquet of roses remains at $15.

a. using supply and demand curves, demonstrate the likely effect of this decrease in the price of daisies on the equilibrium price and quantity of roses sold in the market.

Answer 1

Answer: The price of a bouquet of roses will fall and the quantity sold will also fall.

Step-by-step explanation: Bouquet of roses and Bouquet of Daisies are substitutes to each other. When price of a bouquet of daisies falls, while price of a bouquet of roses remains the same it is likely that customers will shift demand to the good that is relatively less expensive. Thus, customer will demand more bouquet of daisies and less bouquet of roses. This will lead to a leftward shift in the demand curve for rose bouquets. The result is a lower price of rose bouquet and a lower quantity being sold in the market.