Hatch green chiles are used to make green chile scones. Butter is a complement in consumption to green chile scones. What happens to the equilibrium price and quantity in the market for green chile scones if the price of butter decreases, if the price of hatch green chiles decreases, and if we know these changes have a greater effect on supply than on demand?

Question

Quizplus · Accepted Answer

When the price of butter decreases, it becomes cheaper to consume green chile scones, increasing their demand. Similarly, a decrease in the price of hatch green chiles lowers the production costs for green chile scones, increasing their supply. Both these changes lead to an increase in the equilibrium quantity. Given that the changes have a greater effect on supply than on demand, the increased supply will likely lead to a decrease in the equilibrium price. Thus, the equilibrium price decreases, and the equilibrium quantity increases.

Hatch Green Chiles Are Used to Make Green Chile Scones