Suppose that the demand curves for goods A, B, and C have the following functional forms:, where Q denotes quantity demanded and P denotes price:
QA = 120 - 3.5 PA - 6PB QB = 100 - 2PB + 3PC QC = 1500 - 0.5PC.
Based on these demand curves, which of the following pairs of goods are known to be complements?

Question

Quizplus · Accepted Answer

Two goods are complements if an increase in the price of one good leads to a decrease in the quantity demanded of the other good. Looking at the demand curves, an increase in the price of good A (PA) will lead to a decrease in the quantity demanded of good B (QB) because the coefficient of PB is negative (-6). Similarly, an increase in the price of good B (PB) will lead to a decrease in the quantity demanded of good A (QA) because the coefficient of PA is negative (-3.5). Therefore, goods A and B are complements. However, there is no direct relation between goods A or B and good C, so neither of those pairs are complements. Therefore, the best choice is C, A and B.

Suppose That the Demand Curves for Goods A, B, and C