Principles of Microeconomics / Unit 2 MIC 0118 worked example, 60 to 90 seconds
A Related Good's Price Changes
The idea
When the price of a related good changes, two things happen and only one of them is a shift. In the market for the good whose price changed, there is a movement along its own demand curve. In the market for the related good, demand shifts: left if the two are substitutes and the first got cheaper, right if they are complements and the first got cheaper, and the reverse for a price rise. Then read the second market's new equilibrium off the shift.
In practice
Worked example: oranges and apples are close substitutes, and the price of apples falls. Buyers move along the apple demand curve to more apples, and some of them leave oranges, so the demand for oranges shifts left. In the orange market the new equilibrium has a lower price and a lower quantity. Had the two been complements, cheaper apples would have shifted orange demand right, and both would have risen.
Where people slip
Answer for the right market. The question asks about oranges, so the answer is a shift in the orange market, and both the price and the quantity of oranges fall. Saying that the quantity of apples demanded rose is true and is not the answer. And keep the two goods straight: it is the other good's demand that shifts.
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