Practice

Free response question

Microeconomics · Hard · 30 marks

IEO past paper: 2018 International Economics Olympiad, open questions

Consider two commodities, A and B, that are substitutes in consumption.

(a)Suppose that the number of consumers of good A increased, thus shifting the demand for it. Assuming perfect competition in both markets, what can you say about the resulting change in the price of B? Explain in detail.[10](b)Suppose that A and B are not only substitutes in consumption but also complements in production. What can you say about the resulting change in the price of B? Explain in detail.[10](c)Give a real-world example of two commodities that are both substitutes in consumption and complements in production.[10]

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