Question 66

The price rises and the supply falls

As the price of cotton increases, it raises production costs for blue jeans, leading to a decrease in supply. Consequently, the higher costs are likely to be passed on to consumers, resulting in an increase in the price of blue jeans.

A) The price falls, and the supply rises

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 an increase in supply. Instead, higher costs typically result in higher prices and reduced supply.

B) The price and supply both rise

This option fails to recognize the typical market response to increased input costs. While it suggests that prices would rise, it incorrectly indicates that supply would also increase, which is unlikely due to the higher production costs associated with more expensive cotton.

C) The price and supply both fall

This option misunderstands the relationship between input costs and supply. While the supply may decrease due to higher costs, the price is expected to rise rather than fall, as producers would need to charge more to cover increased expenses.

D) The price rises and the supply falls

This option accurately reflects the economic principle that an increase in the price of a key input, such as cotton, leads to increased production costs. This results in a decrease in supply and an increase in the market price of blue jeans as manufacturers pass on the higher costs to consumers.

Conclusion

The correct answer, D, effectively captures the economic dynamics at play when input costs rise. The other options either misinterpret the relationship between supply and price or fail to account for the increased costs associated with production. Thus, as cotton prices rise, we can expect the price of blue jeans to rise while their supply decreases.