Complements and Cross-Price Effects

Steps:

• Increase in supply of Y shifts its supply curve right, lowering equilibrium price of Y.
• As complements, lower price of Y raises demand for X, shifting X's demand curve right.
• With upward-sloping supply for X, rightward demand shift increases equilibrium price of X.
• The same shift also increases equilibrium quantity of X.

Why D is correct:

• For complements, a fall in one good's price increases demand for the other via the cross-price elasticity of demand (negative value), raising both price and quantity in the new equilibrium.

Why the others are wrong:

• A: Quantity rises due to higher demand, not falls.
• B: Price rises from increased demand, not falls.
• C: Quantity rises with demand shift, not falls.

Final answer: D