What happens to the demand curve for toasters if the price of bread rises? Show in a supply-demand diagram how the equilibrium price and quantity of toasters change.
The correct answer and explanation is :
If the price of bread rises, the demand curve for toasters shifts leftward (decreases). Bread and toasters are complementary goods—they are often used together. When the price of one complement increases, the demand for the other tends to fall.
📉 Impact on the Toaster Market
As bread becomes more expensive, people may buy less bread.
With less bread being consumed, the utility of owning a toaster diminishes.
As a result, the demand for toasters falls, even though the price of toasters hasn’t changed.
This decrease in demand is shown by a leftward shift of the demand curve for toasters.
📈 Effect on Equilibrium Price and Quantity
A leftward shift in demand, with supply unchanged, creates excess supply at the original equilibrium price.
This surplus puts downward pressure on the price of toasters.
As the price falls, quantity supplied decreases and quantity demanded increases—until a new equilibrium is reached.
The new equilibrium has a lower price and lower quantity of toasters sold.