0
$\begingroup$

If the demand curve for Coffee shifts to the right, both Price of Coffee and Quantity of Coffee that gets sold go up.

What happens to the Price of Sugar?

Coffee and Sugar are complements, so one would think that as price of coffee goes up, people consume less of both complement goods, so demand for sugar should fall (demand curve for sugar shifts to the left).

However, since the reason for the price going up is the demand for coffee increasing, Quantity of Coffee is higher, meaning that people purchase MORE Coffee AND More Sugar. Is the demand curve for sugar shifting to the right, after all?!

Is it the case that the demand curve for sugar shifts to the left only if the price increase is due to supply of coffee falling?

Thank you for the clarification!

Improve this question
$\endgroup$

1 Answer 1

Reset to default
1
$\begingroup$

Is it the case that the demand curve for sugar shifts to the left only if the price increase is due to supply of coffee falling?

You seem to be confusing to concepts here: when the demand curve shifts, the demand changes at all price levels. This change is not a result of changing prices. When price changes, the quantity demanded (at the given price, given the demand curve) changes.

It is not easy to give a definitive answer to these demand shift questions when the reason for the demand shift is not given. If we assume that the underlying relationship between sugar and coffee is unchanged, they are still perfect complements and at the same ratio, then sugar's demand will have to shift like coffee's demand did: $$ s(p_c,p_s,I) = r_{\text{complement_ratio}} \cdot c(p_c,p_s,I) $$ If, however, coffee's demand shift is, for example, because in addition to drinking sugary coffee people also started to chew coffee beans without sugar, then sugar's demand curve could be unaffected.

Improve this answer
$\endgroup$
8
  • $\begingroup$ Thank you for your reply. Normally people say that when price of a complement (e.g., coffee) rises, the demand for the other complement good (e.g., sugar) falls. The reason for the price rise is never specified. But what if the reason for the price rise is an increase in demand? If the demand for coffee rises due to news that coffee increases longevity, coffee price will rise, and we would say that the demand for sugar falls. But is that what would happen, in theory, in this case? Please help me understand this. $\endgroup$
    – BillB
    Oct 5, 2022 at 20:56
  • $\begingroup$ @BillB If coffee drank together with sugar were to increase longevity than the complement ratio would be unchanged and both demand curves would shift upward. If the prices would remain constant, both quantities demanded would increase by a certain amount. However, assuming a usual supply function, the price of coffee will rise. This will decrease sugar consumption somewhat. Also, if sugar's supply function is also usual, sugar's equilibrium price will increase as well, further mitigating the growth of consumption. $\endgroup$
    – Giskard
    Oct 5, 2022 at 21:43
  • $\begingroup$ Sugar consumption will still be larger than before the demand shift, but not as large as it would be if the goods were available at unlimited quantities at the previous prices. $\endgroup$
    – Giskard
    Oct 5, 2022 at 21:44
  • $\begingroup$ Thank you! In your example when demand for coffee shifted right, the demand for sugar increased too, even as the price of its complement good/coffee increased. The clarification above (for the case when coffee [with or without sugar] increases longevity) seems to imply that the economics rule "Demand curve shifts left when the price of a complement rises" is, in general, not true. Right? When the price rises as a result of the demand curve shifting right, the demand for the complement will tend to shift right too. $\endgroup$
    – BillB
    Oct 6, 2022 at 0:28
  • $\begingroup$ The price can rise as a result of either demand curve shifting right or supply curve shifting left. When the price rises as a result of the supply curve shifting left, Then the demand for the complement is likely to shift left. $\endgroup$
    – BillB
    Oct 6, 2022 at 0:29

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Not the answer you're looking for? Browse other questions tagged or ask your own question.