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

Using supply and demand curves, show how an increase in the price of s

1.	Using supply and demand curves, show how an increase in the price of shoes affects the price of a pair of socks and the number of pair of socks bought and sold.
Answer» Solution :Shoes and socks are complementray goods. An INCREASE in the PRICE of shoes will cause a decrease in DEMAND for its complementary goods (socks). As a result, demand curve of socks will shift to the LEFT to `D_(1)D_(1)`. There will be a new equilibrium POINT at `E_(1)`. Both equilbrium price and equilibrium qunatity will decline. From `OP-OP_(1)` and `OM-OM_(1)` respectively.