📚 Learning Guide
Substitutes and Complements in Economics
hard

If the price of potatoes increases significantly, which of the following is the most likely economic outcome regarding corn, and what is the underlying cause of this effect?

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Choose the Best Answer

A

Increased demand for corn due to its status as a substitute for potatoes.

B

Decreased demand for corn because consumers will avoid both potatoes and corn.

C

Increased demand for corn because it is a complementary good to potatoes.

D

No change in demand for corn since consumers have fixed preferences.

Understanding the Answer

Let's break down why this is correct

Answer

When the price of potatoes goes up a lot, people might decide to buy less potatoes because they are now more expensive. Instead, they might choose to buy more corn, especially if corn is a cheaper alternative. This happens because potatoes and corn can be substitutes for each other; if one becomes too costly, people look for other options. For example, if a bag of potatoes costs $5 and a bag of corn costs $2, consumers might switch to corn to save money. The underlying cause is that when the price of one item increases, it often leads to an increase in demand for its substitute.

Detailed Explanation

When potatoes cost more, people look for cheaper options. Other options are incorrect because This idea suggests that if potatoes are expensive, people will stop buying corn too; This answer confuses substitutes with complements.

Key Concepts

Substitutes
Consumer Behavior
Market Dynamics
Topic

Substitutes and Complements in Economics

Difficulty

hard level question

Cognitive Level

understand

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