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Price impacts: complements and substitutes

27 一月, 2016 - 16:24

The nature of complements and substitutes, defined in Measures of response: elasticities, can be further understood with the help of Figure 6.10. The new equilibrium E_2 has been drawn so that the increase in the price of jazz results in more snowboarding—the quantity of S increases to S_2 from S_0. These goods are substitutes in this picture, because snowboarding increases in response to an increase in the price of jazz. If the new equilibrium E_2 were at a point yielding a lower level of S than S_0, we would conclude that they were complements.