Question 66

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 supply. Consequently, the higher production costs typically result in an increase in the retail 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. Instead, higher input costs usually cause the price to rise, not fall. Additionally, an increase in production costs would not incentivize an increase in supply.

B) The price and supply both rise

While it is true that the price may rise due to increased cotton costs, this option incorrectly states that supply would also rise. In reality, higher production costs generally lead to a decrease in supply, as producers may find it less profitable to manufacture blue jeans at the higher costs.

C) The price and supply both fall

This option is incorrect as well. An increase in the price of cotton would typically lead to an increase in the price of blue jeans, not a decrease. Furthermore, the supply is likely to fall rather than fall, as higher costs discourage production.

D) The price rises and the supply falls

This option accurately reflects the economic principle at play. As the cost of cotton increases, manufacturers face higher production costs, which leads to a decrease in supply. In response to reduced supply, the price of blue jeans tends to rise.

Conclusion

Option D is the only answer that correctly captures the relationship between input costs, supply, and price. The increase in cotton prices raises production costs, leading to a decrease in the quantity of blue jeans supplied and an increase in their market price. All other options fail to align with these economic dynamics.