Question

A leather company produces shoes and belts. What will the company do if it expects the price of shoes to rise in the near future? It will do nothing and continually evaluate the situation. It will move resources from shoe to belt production, thereby decreasing the supply of shoes. It will enter into a new product line, such as jackets. It will move resources from belt production to shoe production, thereby decreasing the supply of belts.

Answer 1

Answer:

The answer is: It will move resources from belt production to shoe production, thereby decreasing the supply of belts.

Explanation:

The Law of Supply states that as the price of a product increases, suppliers are willing to offer a larger quantity of that product. But if the price of a product decreases, suppliers will be willing to offer smaller quantities of that product.

In this case, the leather company will want to offer a larger quantity of shoes since the price of shoes is likely to increase. Since all companies only have a certain total amount of resources, in order to be able to produce more shoes they might have to decrease the quantity supplied of belts.