Question 38

The price rises, and the supply falls

When the price of cotton increases, the cost of producing blue jeans also rises, leading to a decrease in the supply of blue jeans available in the market. Consequently, the increased production costs typically result in a higher retail price for blue jeans.

A) The price and supply both fall

This option is incorrect because an increase in the price of cotton—a primary input for blue jeans—would not lead to a decrease in price or supply. Instead, higher input costs generally reduce supply while increasing prices.

B) The price rises, and the supply falls

This option is correct as it accurately reflects the economic principle that an increase in production costs (due to higher cotton prices) typically results in a decrease in supply. As producers face higher costs, they are less able or willing to supply the same quantity of blue jeans, leading to a higher market price.

C) The price and supply both rise

This option is incorrect because while the price of blue jeans may rise due to higher production costs, the supply would not rise. Instead, it would decline as manufacturers respond to increased costs by reducing output.

D) The price falls, and the supply rises

This option is incorrect as it contradicts basic economic principles. An increase in cotton prices leads to higher production costs, which would not result in falling prices or increased supply of blue jeans.

Conclusion

The correct answer, B, demonstrates the relationship between input costs and market dynamics, where an increase in the price of a key input like cotton leads to higher retail prices and reduced supply of the final product. All other options fail to recognize this economic principle, making them inaccurate in the context of the question.