Which of the following statements is true about the impact of an increase in the price of lettuce ?
Correct answer: D. The equilibrium price and quantity of salad dressing will fall
- A. Both the demand for lettuce will decrease and the equilibrium price and quantity of salad dressing will fall
- B. The supply of lettuce will decrease
- C. The demand for lettuce will decrease
- D. The equilibrium price and quantity of salad dressing will fall
- E. The equilibrium price and quantity of salad dressing will rise
Explanation
Lettuce and salad dressing are complementary goods, so a higher lettuce price reduces demand for salad dressing. Its equilibrium price and quantity therefore both fall; the own-price effect on lettuce is a decrease in quantity demanded, not demand.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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