Question

Corn chips and potato chips are substitutes. Good weather that sharply increases the corn harvest would a. increase consumer surplus in the market for corn chips and decrease producer surplus in the market for potato chips. b. decrease consumer surplus in the market for corn chips and decrease producer surplus in the market for potato chips. c. decrease consumer surplus in the market for corn chips and increase producer surplus in the market for potato chips. d. increase consumer surplus in the market for corn chips and increase producer surplus in the market for potato chips.

Answer 1

Answer: Option(a) is correct.

Explanation:

Corn chips and potato chips, both are substitute goods and thus, affect each others demand by a small changes in various factors.

In this question, a good weather increases the harvesting of corn which increases the supply of corn chips.

This shifts the supply curve rightwards as a result price falls and quantity increases. Hence, this lower price, increases the consumer surplus in the market of corn chips.

This change in the supply of corn chips will affect the demand for potato chips in the potato chips market. So, the demand curve for potato chips shifts leftwards. This shift in the demand curve, reduces the price level and quantity level. Hence, this lowers the producer surplus in the market for potato chips.