Assuming potatoes and beans are substitutes, an increase in the cost of producti

Question

Assuming potatoes and beans are substitutes, an increase in the cost of production for potatoes. A) will increase in the price of potatoes, but not that of beans B) will result in the increase of the price of beans, but not that of potatoes c) will result in the increase of the price of both potatoes and beans d) will not result in the increase wither potatoes and beans Assuming potatoes and beans are substitutes, an increase in the cost of production for potatoes. A) will increase in the price of potatoes, but not that of beans B) will result in the increase of the price of beans, but not that of potatoes c) will result in the increase of the price of both potatoes and beans d) will not result in the increase wither potatoes and beans

Explanation / Answer

Substitutes are products, that can be replaced. Here Potatos and beans are substitutes. So demand of potatos can be replaced by consuming required quantum of beans. Wheat and rice, Tea and Coffee, Petrol and Diesel are some substitutes.

Here cost of production of potatos are increased. It will increase sale price of potatos. So consumption of potatos are more costly after price rise. Consumer can reduce the cost by taking nore beans since it is comparatively cheap now. Thus demand of Beans will rise. Increase in demand of beans will create imbalance in the demand and supply of beans. As demand is more than supply, price of Beans will also rise.

Answer: Price of both potato and beans will rise. So option (c) is correct.

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