UNIT ONE: SECOND READING for MACRO
(Part 3 of 5) 
UNIT ONE: SECOND READING for MACRO
(Part 3 of 5)
Another type of related good is known as a complement. Pizza and cheese sticks could be complementary goods, since they are often consumed together. (Or do you think pizza and cheese sticks are substitutes? There is more about this in one of the extra credit questions.) Peanut butter and jelly or ham and cheese would also be complementary food items. If the price of the complement (peanut butter) rises, then the demand for the main item (jelly) drops. The demand curve for jelly would shift back to the left. On the other hand, if the price of peanut butter dropped, then the demand curve for jelly would shift out to the right, an increase in demand for jelly.
Let’s assume that pizza and cheese sticks are complementary products, although they may be weaker complements than peanut butter and jelly. If we held other variables constant and lowered the price of cheese sticks, would pizza demand increase? What if the price of cheese sticks increased? Would pizza demand go down? If the answer is yes, then the two goods are considered complements. If a change in the price of cheese sticks had no impact on pizza demand, then the two items would be considered unrelated goods.
Using the sketch format, assume the price of cheese sticks goes down and show the effect of this change by shifting the demand curve to a new position. Indicate the new equilibrium price-quantity combination.
Now sketch another supply and demand graph for pizza and this time assume the price of cheese sticks went up. Show the effect of this change by shifting the demand curve to a new position and showing the new equilibrium price-quantity combination.
Another factor that can cause demand curves to shift is wide ranging: changes in consumer tastes and preferences. Changing laws that reflect new social attitudes can cause a decrease in demand for products such as cigarettes and alcohol or increases in demand for fitness products and special weight-loss diets.
Suppose a medical study was done and the results indicated that high pizza consumption was good for you. By consuming huge amounts of pizza, you would live a longer and healthier life. Set up a sketch graph and show the impact of this change.
Now assume the study showed that high pizza consumption was bad for you. Heavy pizza consumption might make you bloated and you might even explode from the high fat and sodium content. Sketch another supply and demand graph that shows the effect of this change.
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