Assume butter and margarine are substitute products. What effect would you expect a decrease in the price of butter might have on the equilibrium in the market for margarine?

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BlackTom AI · Accepted Answer

The question asks about the effect on the margarine market when the price of butter falls, given that butter and margarine are substitute goods. A fall in butter’s price makes butter relatively cheaper, so consumers substitute away from margarine toward butter, reducing demand for margarine. Now let's evaluate each option in turn.

Option a: 'A decrease in demand for margarine would cause both the equilibrium price and quantity traded for margarine to rise.' This is inconsistent: a decrease in demand typically lowers both the equilibrium price and quantity, not raises them. The direction stated (price and quantity rising) does not align with standard demand–supply analysis for a decrease in demand.

Option b: 'An increase in demand for margarine would cause both the equilibrium price and quantity traded for margarine to rise.' If butter’s price falls, consumers shift toward butter, not margarine, so demand for margarine would not increase. Therefore this option describes the wrong causal direction given the substitute relationship between butter and margarine.

Option c: 'A decrease in demand for margarine would cause both the equilibrium price and quantity traded for margarine to fall.' This aligns with the idea that a lower demand shifts the demand curve leftward, reducing both the equilibrium price and the equilibrium quantity in a typical supply-and-demand framework for a competitive market. It correctly captures the effect of substitutes where the cheaper butter reduces the attractiveness of margarine.

Option d: 'An increase in demand for margarine would cause both the equilibrium price and quantity traded for margarine to fall.' An increase in demand would generally raise both price and quantity, not lower them. This option contradicts basic demand theory and the expected substitution effect when butter becomes cheaper.

In summary, the scenario describes a leftward shift in margarine’s demand curve due to consumers substituting toward the cheaper butter, which leads to lower equilibrium price and lower equilibrium quantity for margarine. The only option that matches this outcome is option c.

MUF0061 Economics Unit 1 - Semester 1, 2025 Revision Quiz - Market Equilibrium (12 - 15 minutes)

Assume butter and margarine are substitute products. What effect would you expect a decrease in the price of butter might have on the equilibrium in the market for margarine?

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MUF0061 Economics Unit 1 - Semester 1, 2025 Revision Quiz - Market Equilibrium (12 - 15 minutes)

Assume butter and margarine are substitute products. What effect would you expect a decrease in the price of butter might have on the equilibrium in the market for margarine?

查看解析

登录即可查看完整答案

类似问题

Price decreases for a product are most likely to occur when

Assume that a competitive industry producing a normal good is in long-run equilibrium. If average consumer income decreases, which of the following changes will occur?

Which of the following describes how a market will respond when the scarcity of a good increases?

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

In the coffee market, which of the following changes will increase the price and decrease the quantity of coffee?

At an initial equilibrium, demand curve shifts to the left, supply curve remain unchanged. This creates ______________ and prices will _______________ restore the market equilibrium.

At an initial equilibrium, supply curve shifts to the left, demand curve remain unchanged. This creates ______________ and prices will _______________ restore the market equilibrium.

Due to the Covid-19 Pandemic, the demand for face masks and sanitizers have greatly increased which also increased the price for these products by 50%. Which of the following statements is true?

更多留学生实用工具

希望你的学习变得更简单

At an initial equilibrium, demand curve shifts to the left, supply curve remain unchanged. This creates and prices will _ restore the market equilibrium.

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