Question

A recent study found that an increase in the federal tax on beer (and thus an increase in the price of beer would reduce the demand for marijuana. We can conclude that:___.A. beer and marijuana are substitute goods.B. beer and marijuana are complementary goods.C. beer is an inferior good.D. marijuana is an inferior good.

Answer 1

Answer: Beer and marijuana

       

Explanation: In simple words, complementary goods refers to those goods which are used together. These goods have negative cross elasticity of demand. When the price of one such good increases the demand for the other decreases.

In the given case the increase in price of beer is decreasing the demand for marijuana. Hence these two are complementary goods.