Question

Suppose a wet and sunny year increases the nation's sweetcorn crop by 20%. How will this affect the market for frozen peas,a substitute for sweet corn?
a) increase in demand
b) decrease in supply
c) increase in supply
d) decrease in demand

Answer 1

Answer:

d) decease in demand

Explanation:

When the produce of sweet corn crop rises by 20%, this would lead to an increase in supply. With increase in supply, the price of sweet corn shall fall, which would lead to an increase in demand as now consumers will consume more of sweet corn.

Since the relationship between price of a good and demand for it's substitute is positive, the demand for the substitute shall fall.

Thus, demand for frozen peas shall decrease as demand for sweet corn has increased.