If toast and butter are complements, then which of the following would increase the demand for toast?
A decrease in the price of toast a decrease in the price of butter
B an increase in the price of butter
C Both a and b are correct.
The correct answer and explanation is:
The correct answer is B: an increase in the price of butter.
When two goods are complements, the demand for one good is directly related to the price of the other. In this case, since toast and butter are complements, an increase in the price of butter will lead to a decrease in the quantity demanded for butter. However, because butter and toast are typically consumed together, a decrease in butter consumption also results in a lower demand for toast.
Now, consider the other possibilities:
A: a decrease in the price of toast: A decrease in the price of toast would make toast more affordable, which would increase its quantity demanded. However, this does not directly affect the demand for butter unless butter’s price changes or another factor influences the complement relationship. So, a decrease in the price of toast alone does not guarantee an increase in the demand for butter or toast as a complementary product.
B: an increase in the price of butter: If the price of butter increases, consumers will generally buy less butter. Since toast and butter are consumed together, less demand for butter translates into less demand for toast. Therefore, in the case of complementary goods like toast and butter, an increase in butter’s price leads to a decrease in the demand for both.
Therefore, the most accurate answer is B: an increase in the price of butter, since the demand for toast will decrease as butter becomes more expensive. The price relationship between toast and butter significantly influences the demand for both, and complementary goods have an inverse relationship in terms of price changes.