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.

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

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