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If consumers often purchase muffins to eat while they drink their lattes at local coffee shops, what would happen to the equilibrium price and quantity of lattes if the price of muffins falls?

Answer :

Final answer:

A decrease in the price of muffins, which are often consumed with lattes, would lead to an increase in demand for lattes, thereby increasing both the equilibrium price and quantity of lattes.

Explanation:

The question is related to the concept of complementary goods in economics. Complementary goods are those that are often used together, like muffins and lattes in this case. If the price of a complement (muffin) falls, people tend to buy more of it, which increases the demand for its complement (lattes). This increased demand for lattes therefore shifts the demand curve for lattes to the right. As this happens, both the equlibrium price and quantity of lattes increases. The adjustments of equilibrium price and quantity in a market economy occur smoothly and rapidly, often without us even noticing them. This is a major advantage of the market system.

Learn more about Complementary Goods and Equilibrium here:

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