Tomatoes are an input in the production of ketchup, and ketchup and mustard are substitutes. A decrease in the price of tomatoes will _________ the total surplus in the market for mustard. 1 pointdecreaseincreasefirst increase and then decreasenot change
Question
Tomatoes are an input in the production of ketchup, and ketchup and mustard are substitutes. A decrease in the price of tomatoes will _________ the total surplus in the market for mustard. 1 pointdecreaseincreasefirst increase and then decreasenot change
Solution
A decrease in the price of tomatoes will decrease the total surplus in the market for mustard. Here's why:
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If the price of tomatoes decreases, the cost of producing ketchup also decreases. This is because tomatoes are an input in the production of ketchup.
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As a result, the supply of ketchup increases, leading to a decrease in the price of ketchup.
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Since ketchup and mustard are substitutes, a decrease in the price of ketchup will lead to a decrease in the demand for mustard. This is because consumers will prefer to buy the cheaper substitute, ketchup, instead of mustard.
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A decrease in demand for mustard will lead to a decrease in the total surplus in the market for mustard. Total surplus is the sum of consumer and producer surplus, and it decreases when demand decreases.
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