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Chapter 4: Problem 3

Consider the market for chicken. An increase in the price of beef will a. decrease the demand for chicken, resulting in a lower price and a smaller amount of chicken purchased in the market. b. decrease the supply of chicken, resulting in a higher price and a smaller amount of chicken purchased in the market. c. increase the demand for chicken, resulting in a higher price and a greater amount of chicken purchased in the market. d. increase the supply of chicken, resulting in a lower price and a greater amount of chicken purchased in the market.

Short Answer

Expert verified
Answer: \( \boxed{\text{c}} \) An increase in the price of beef will increase the demand for chicken, resulting in a higher price and a greater amount of chicken purchased in the market.

Step by step solution

01

Option a

An increase in the price of beef will decrease the demand for chicken, resulting in a lower price and a smaller amount of chicken purchased in the market. This option suggests that the increase in the price of beef (a substitute for chicken) would decrease the demand for chicken. However, according to the concept of substitute goods, if the price of one good (beef) increases, the demand for its substitute (chicken) should increase as consumers tend to switch from the more expensive good to its cheaper alternative. Therefore, this option is incorrect.
02

Option b

An increase in the price of beef will decrease the supply of chicken, resulting in a higher price and a smaller amount of chicken purchased in the market. This option implies that the increase in the price of beef would decrease the supply of chicken, which would lead to higher chicken prices and lower quantities purchased. However, the price of beef does not directly affect the supply of chicken, so this option is also incorrect.
03

Option c

An increase in the price of beef will increase the demand for chicken, resulting in a higher price and a greater amount of chicken purchased in the market. This option is consistent with the concept of substitute goods, as it suggests that the increase in the price of beef (a substitute for chicken) will lead to an increase in the demand for chicken. As a result, the price of chicken will rise, and a larger quantity of chicken will be purchased in the market. This option is correct.
04

Option d

An increase in the price of beef will increase the supply of chicken, resulting in a lower price and a greater amount of chicken purchased in the market. This option suggests that the increase in the price of beef would increase the supply of chicken, which would lead to lower chicken prices and higher quantities purchased. However, similar to option b, the price of beef does not directly affect the supply of chicken, so this option is also incorrect. Based on the analysis, the correct answer is option c: An increase in the price of beef will increase the demand for chicken, resulting in a higher price and a greater amount of chicken purchased in the market.

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