The correct answer is: C. A downward shift in demand for the other commodity
Complements are goods that are used together. For example, pens and paper are complements, because you typically use one with the other. If the price of pens goes up, people will buy less pens. This means that they will also buy less paper, because they are not going to use as many pens. Therefore, the demand for paper will decrease.
Here is a diagram that illustrates the effect of a change in the price of one good on the demand for its complement:
[Diagram of a demand curve for a good, with a shift to the left representing a decrease in demand.]
The original demand curve is D0. When the price of the complement goes up, the demand curve shifts to the left to D1. This is because people are buying less of the good, and therefore they are also buying less of its complement.
Here is a brief explanation of each option:
- A. An upward shift in demand for the other commodity
This is not correct, because complements have a negative cross-price elasticity of demand. This means that when the price of one good goes up, the demand for its complement goes down.
- B. A rise in the price of the other commodity
This is not correct, because the price of the other commodity is not affected by the change in the price of the first good.
- C. A downward shift in demand for the other commodity
This is correct, as explained above.
- D. No shift in the demand for the other commodity
This is not correct, because the demand for the other commodity will shift to the left when the price of the first good goes up.