Answer Because bagels and cream cheese are often eaten together, they are complements.

a. We observe that both the equilibrium price of cream cheese and the equilibrium quantity of bagels have risen. What could be responsible for this pattern - a fall in the price of flour or a fall in the price of milk? Illustrate and explain your answer.

b. Suppose instead that the equilibrium price of cream cheese has risen but the equilibrium quantity of bagels has fallen. What could be responsible for this pattern - a rise in the price of flour or a rise in the price of milk? Illustrate and explain your answer.

There are two problems in this statement, first, we will answer the first problem. First, let's focus on cream cheese and bagels. If the price of cream cheese has risen, it might because of an increase in demand or a decrease in supply. While if there has risen of bagels price, it might be caused by the decrease in demand or increase in supply. So the fall in the price of flour will increase the supply of bagels. While the fall in the price of milk will increase the supply of cream cheese? No, it will not happen. Ergo, the answer is a fall in the price of flour. For the second problem, the pattern we will use is the following: An increase in the price of cream cheese would be caused by either the increase in demand or decrease in supply and A decrease in the quality of bagels would be caused by the decrease in demand or supply. So, a fall in the price of flour will cause an increase in the supply of bagels (doesn't fit) and a rise in the price of milk will cause a decrease in the supply of cream cheese (fits). Therefore, the best answer is a rise in the price of milk.