What is the residual effect on the price of jelly

Reference no: EM131335477

Peanut butter has always been thought to be a delicious, wholesome food. That is, until the FDA releases its Food Defect Guidelines that set maximum allowable amounts of rodent excreta that may be present in every jar (surprisingly, the maximum is not zero!). Following this release, the demand for peanut butter falls.

a. What is the immediate effect on the price of peanut butter and the quantity consumed?

b. Peanut butter and jelly are complements. What is the residual effect on the price of jelly?

c. What effect does the change in the price of jelly you indicated in part (b) have on the demand for peanut butter?

d. Does the demand effect you indicated in part (c) tend to push peanut butter prices and quantities back toward their original values, or farther away from them?

Reference no: EM131335477

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