Cornflakes and milk are complementary goods.A decrease in the price of corn will
A)increase consumer surplus in the market for cornflakes and decrease producer surplus in the market for milk.
B)increase consumer surplus in the market for cornflakes and increase producer surplus in the market for milk.
C)decrease consumer surplus in the market for cornflakes and increase producer surplus in the market for milk.
D)decrease consumer surplus in the market for cornflakes and decrease producer surplus in the market for milk.

Question

Quizplus · Accepted Answer

When the price of corn decreases, it becomes cheaper to produce cornflakes, which will increase the supply of cornflakes. As a result, the equilibrium price of cornflakes will decrease, leading to an increase in consumer surplus for cornflakes. Since milk is a complementary good, the demand for milk will also increase, leading to an increase in the equilibrium price of milk and an increase in producer surplus for milk. Hence, the best choice is B – an increase in consumer surplus in the market for cornflakes and an increase in producer surplus in the market for milk.

Cornflakes and Milk Are Complementary Goods