Chapter 4/The Market Forces of Supply and Demand ❖ 77
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Because computer software is a complement to computers, the lower equilibrium price of
computers increases the demand for software. As Figure 20 shows, the result is a rise in both the
equilibrium price and quantity of software.
Figure 20
equilibrium price and quantity of typewriters.
Figure 21
6. a. When a hurricane in South Carolina damages the cotton crop, it raises input prices for
producing sweatshirts. As a result, the supply of sweatshirts shifts to the left, as shown
in Figure 22. The new equilibrium price is higher and the new equilibrium quantity of
sweatshirts is lower.
Figure 22
Figure 23
Chapter 4/The Market Forces of Supply and Demand ❖ 79
Figure 24
quantity of sweatshirts.
Figure 25
7. Ketchup is a complement for hot dogs. Therefore, when the price of hot dogs rises, the
quantity demanded of hot dogs falls and this lowers the demand for ketchup. The end result
tomato juice to fall and the quantity of tomato juice to rise. The fall in the price of tomato
juice causes people to substitute tomato juice for orange juice, so the demand for orange
80 ❖ Chapter 4/The Market Forces of Supply and Demand
8. a. Quantity supplied equals quantity demanded at a price of $6 and quantity of 81 pizzas
(Figure 30).
Figure 30
adjust until it reached $6, the only price at which there is neither a surplus nor a shortage.
9. The news of the increased health benefits from consuming oranges will increase the demand
for oranges, increasing both the equilibrium price and quantity. If farmers use a new fertilizer
that makes orange trees more productive, the supply of oranges will increase, leading to a
fall in the equilibrium price but a rise in the equilibrium quantity. If both occur at the same
time, the equilibrium quantity will definitely rise, but the effect on equilibrium price will be
ambiguous.
10. a. Because flour is an ingredient in bagels, a decline in the price of flour would shift the
supply curve for bagels to the right. The result, shown in Figure 31, would be a fall in the
price of bagels and a rise in the equilibrium quantity of bagels.
Figure 31
Chapter 4/The Market Forces of Supply and Demand ❖ 81
Because cream cheese is a complement to bagels, the fall in the equilibrium price of
bagels increases the demand for cream cheese, as shown in Figure 32. The result is a
rise in both the equilibrium price and quantity of cream cheese. So, a fall in the price of
flour indeed raises both the equilibrium price of cream cheese and the equilibrium
quantity of bagels.
Figure 32 Figure 33
What happens if the price of milk falls? Because milk is an ingredient in cream cheese,
the fall in the price of milk leads to an increase in the supply of cream cheese. This leads
to a decrease in the price of cream cheese (Figure 33), rather than a rise in the price of
cream cheese. So a fall in the price of milk could not have been responsible for the
pattern observed.
b. In part (a), we found that a fall in the price of flour led to a rise in the price of cream
cheese and a rise in the equilibrium quantity of bagels. If the price of flour rose, the
opposite would be true; it would lead to a fall in the price of cream cheese and a fall in
the equilibrium quantity of bagels. Because the question says the equilibrium price of
cream cheese has risen, it could not have been caused by a rise in the price of flour.
What happens if the price of milk rises? From part (a), we found that a fall in the price of
milk caused a decline in the price of cream cheese, so a rise in the price of milk would
cause a rise in the price of cream cheese. Because bagels and cream cheese are
complements, the rise in the price of cream cheese would reduce the demand for bagels,
as Figure 34 shows. The result is a decline in the equilibrium quantity of bagels. So a rise
in the price of milk does cause both a rise in the price of cream cheese and a decline in
the equilibrium quantity of bagels.
82 ❖ Chapter 4/The Market Forces of Supply and Demand
Figure 34 Figure 35
11. a. As Figure 35 shows, the supply curve is vertical. The constant quantity supplied makes
sense because the basketball arena has a fixed number of seats at any price.
8,000 tickets.
c.
Price
Quantity Demanded
Quantity Supplied
$4
14,000
8,000
$8
11,000
8,000
$12
8,000
8,000
$16
5,000
8,000
$20
2,000
8,000
supplied. The equilibrium quantity remains 8,000 tickets.