Question
Explain how changes in prices of other products influence the supply of a given product.
Solution
The supply of a good is inversely influenced with the change in price of other product which can explain as follows:
- Rise in Price of Other product: When there is a rise in the price of other product the production of these products become more profitable due to unchanged cost in comparison of the production of given product. As a result, the producer will produce more quantity of other product so the supply of given good will decrease.
- Fall in the price of Other Product: When there is fall in the price of other product the production of these products become less profitable due to unchanged cost in comparison of the production of given product. As a result, producer will produce less quantity of other product so the factors of production shifted for the production of given good. It causes an increase in the supply of given good.
