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Two-Market Equilibrium for Complementary Goods.
Suppose that markets for two goods which are regarded by consumers as complements have the following demand and supply equations:
q1^s = -1 +p1 , q1^d = 20-2p1-p2
q2^s = p2 , q2^d=40-2p2-p1
Where are the quantities supplied and demanded of good I (i= 1,2) and is the price per unit of good i. The fact that the two goods are complements for each other is represented by the fact that the quantity demanded of each good falls the higher is the price of the other good. Derive the equilibrium prices of the two goods.
Consider each of the five statements listed below. Read each statement and determine if it describes the income effect, the substitution effect, or neither.
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