Question

Using demand and supply curves, show how an increase in the price of shoes affects the price of a pair of socks and the number of pairs of socks bought and sold.

Answer 1

An increase in the price of a complementary good (say shoes) will cause a decrease in demand for its related good (say socks). As a result, the demand curve of the good (socks) will shift to left. The supply curve of socks remaining the same, this will lead to a fall in equilibrium price and equilibrium quantity of socks. It is clear from the diagram that as a result of the decrease in demand, the demand curve will shift leftwards. As a result, the price falls from OP to $O{P}_1$ and the quantity falls from OQ to $O{Q}_1$.