# FasanoSarahAssignment2 - 1 Substitutes and Complements (10...

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1Substitutes and Complements (10 points).Name substitutes and complements for the following goods:GoodSubstitutesComplementsAirline ticketTrain TicketsLuggageMystery novelMovieBook MarkIced teaIced CoffeePastry2Finding Equilibrium Graphically (20 points, 5 points each)The following twoequations show how the price changes with the quantity of a good demanded andsupplied.Demand:P= 800 - 2Q DSupply:P= 200 + 1A.Graph the two equations. At what point are demand and supply equal?Indicate this point on your graph.Q S
B.Is there a positive or a negative relationship between price and quantitydemanded? Between price and quantity supplied? Is this the relationshipyou expect from the theory you have read so far?Demand CurveSupply Curve
directions.This negative relationship can be understood from thedirection of the line, which shows that as price decreases, thequantity demanded increases.This can also be understood bycalculating the slope of the line, which is -2.According to ourbook, “The law of demand says that as the price of a good orservice falls, the quantity demanded of that good or serviceincreases… When the price of a good rises, the quantity demandeddecreases.Because a positive change in price brings a negativechange in the quantity demanded, the price elasticity of demand isa negative number.”However, it is important to note that, “it is themagnitude, or absolute value, of the price elasticity of demand thattells us how responsive the quantity demanded is.So to compareprice elasticity of demand, we use the magnitude of the elasticityand ignore the minus sign.”b.The relationship between price and quantity supplied is positive.1.

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