Assume that consumers consider popcorn and pretzels to be substitutes. A significant decrease in the supply of popcorn will affect the pretzel market by

Question

Assume that consumers consider popcorn and pretzels to be substitutes. A significant decrease in the supply of popcorn will affect the pretzel market by

BlackTom AI · Accepted Answer

Start by identifying the core idea: popcorn and pretzels are substitutes. When the supply of popcorn falls, its price tends to rise, causing consumers to switch to the substitute, pretzels.
Option 1: 'increasing the demand for pretzels and therefore the price of pretzels' — This correctly reflects the substitution effect: a higher price or reduced supply of popcorn makes more consumers want pretzels, shifting pretzel demand to the right and pushing up pretzel prices.
Option 2: 'decreasing the demand for pretzels and therefore the price of pretzels' — This contradicts the substitute relationship. If popcorn becomes more expensive or scarcer, demand for the substitute (pretzels) should rise, not fall, so this is incorrect.
Option 3: 'increasing the supply of pretzels and therefore the price of pretzels' — An increase in supply would generally lower or stabilize price, assuming other factors constant. The scenario describes a demand shift, not a supply shift, so this is not accurate.
Option 4: 'decreasing the supply of pretzels and therefore the price of pretzels' — A decrease in pretzel supply would raise price but is not caused by a decrease in popcorn supply; the link described involves demand shifts due to substitutes, not a direct pretzel supply shift. This makes the statement incorrect.
Option 5: 'increasing the demand for pretzels and therefore the supply of pretzels' — While demand increases, there is no reason to conclude that pretzel supply increases in response. The statement ties the price increase to a supply expansion, which is inconsistent with typical market responses to a substitute-friendly demand shift. This option misstates the causal chain.
In summary, the only option that aligns with the substitution effect and the direction of price change given a significant decrease in popcorn supply is that pretzel demand increases, elevating the pretzel price. All other options misstate the relationship between supply, demand, and substitution behavior.

AP Economics-Hillebrand AP Microeconomics Sem 1 Exam 2025 - Requires Respondus LockDown Browser

Assume that consumers consider popcorn and pretzels to be substitutes. A significant decrease in the supply of popcorn will affect the pretzel market by

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AP Economics-Hillebrand AP Microeconomics Sem 1 Exam 2025 - Requires Respondus LockDown Browser

Assume that consumers consider popcorn and pretzels to be substitutes. A significant decrease in the supply of popcorn will affect the pretzel market by

View Explanation

Log in for full answers

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