B. Shis in supply or demand I The following graph shows the market for cereal in Dallas, where there are over 1,000 stores that sell cereal at any given moment. Suppose the price of milk decreases. (Assume that people regard cereal and milk as complements.) Show the effect of this change on the market for cereai' by shifting one or both of the curves on the foflowing graph, holding all else constant. CmAnsw-r / Suppl Demand -_--_-.+ + 3? g Supply 3 /I E I 8 l H I 5 I E I I I I I I QUANTITY {Boxes} Points: 0.5 1' 1 Explanation: Close Explanation Cereal and milk are complementary goods because people like to consume them together. When the price of milk decreases, it becomes less costly to consume milk and cereal together. Therefore, people increase their consumption of cereal at any given price. Consequently, the demand for cereal increases, and the demand curve shifts to the right. Notice that it is the price of milk, rather than the quantity demanded of milk, that changes the demand for cereal. Note that the supply curve does not shift because none of the factors affecting supply have changed. In particular, the supply curve shifts in response to changes in the following: Factors Affecting Supply I Price of inputs I Production technology I Number of producers I Expectations of producers