Chapter 6, Problem 7MCQ

To determine

The question requires us to determine the impact of a lower potato price on the packing-peanut market.

Explanation of Solution

A fall in potato demand reduces the price of potatoes. A lower price of potatoes will discourage the producer and will cause the supply of potatoes and their complementary products to decrease. When the price of complementary products falls, then there is no incentive in producing the original product, and thus the supply of the original product will fall.

Here, potatoes and packing peanuts are complimentary, when the price of potatoes falls, the supply of packing peanuts will decrease.

Demand for peanuts will increase because when the price of complementary products falls, the demand for the original product will rise.

Thus, option “e” is correct.