Question

Assume that eggs and cereals are substitute products for breakfast. If a disease kills a large number of chickens, what will happen to the demand of cereal?
a. the demand for cereal will stay the same
b. the demand for cereal will shift to the right
c. the demand for cereal will shift to the left
d. the quantity demanded of cereal will increase
e. the quantity demanded of cereal will decrease

Answer 1

Answer:

The correct answer is letter "D": the quantity demanded of cereal will increase.

Explanation:

According to the demand theory, as long as the quantity demanded increases, the price would decrease (the demand curve shifts to the right). The quantity demanded decreases when the price would increase (the demand curve shifts to the left).

In the example, as eggs and cereals are substitute products, if a disease kills a large number of chickens there will be fewer eggs supply in the market. Consumers will start looking for substitutes. Then, the quantity demanded for cereal will increase moving the demand curve to the right.