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If the price of cheese rises, then in the market for pizza, one would expect that the...

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akmeme | Student, Grade 11 | eNotes Newbie

Posted May 17, 2012 at 5:27 AM via web

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If the price of cheese rises, then in the market for pizza, one would expect that the supply of pizza would decrease and price would rise.  Is this statement true or false?

Tagged with economics, pizza, price, supply

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted May 17, 2012 at 5:34 AM (Answer #1)

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This statement is true.  All other things being equal, an increase in the price of cheese causes a decrease in the supply of pizza which causes the price of pizza to rise.

One of the factors that can affect supply is the price of the inputs that make up a product.  Since cheese is an input of pizza, an increase in the price of cheese lowers supply.  When the supply of a good or service goes down, we represent this by moving the supply curve to the left.  When we do this, the equilibrium price of the item rises.

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