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Chapter 04: Demand, Supply, and Markets
True / False
1. The impact of a $200 increase in income on quantity of housing demanded would be called an income effect.
a.
True
b.
False
False
2. The substitution effect of a price change describes the change in the quantity demanded of a good due to a change in its
relative price.
a.
True
b.
False
True
3. As the price of ballpoint pens increases, the demand for felt-tip pens can be expected to decrease.
a.
True
b.
False
False
4. The slope of the demand curve for a normal good must be positive.
a.
True
b.
False
False
5. Demand for an inferior good decreases as consumer income increases.
a.
True
b.
False
True
6. A decrease in the price of peanut butter will cause a leftward shift of the supply curve of peanut butter.
a.
True
b.
False
False
7. If demand decreases, then quantity supplied will increase.
a.
True
b.
False
False
8. When suppliers of a good that can be easily stored expect its price to increase in future, they will reduce its current
supply.
a.
True
b.
False
True
9. A decrease in the price of peanuts will cause a leftward shift in the supply curve of peanut butter.
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Chapter 04: Demand, Supply, and Markets
a.
True
b.
False
False
10. An increase in professors’ salaries increases the supply of college education.
a.
True
b.
False
False
11. Markets tend to increase the costs of time and information required for exchange.
a.
True
b.
False
False
12. Classified ads and job web sites reduce the transaction costs of finding a new job.
a.
True
b.
False
True
13. A mismatch between quantity demanded and quantity supplied will always force a price change.
a.
True
b.
False
True
14. If supply of a good increases while its demand decreases, then equilibrium price will fall.
a.
True
b.
False
True
15. When both supply and demand for a good increases, the change in equilibrium quantity is indeterminate.
a.
True
b.
False
False
16. A price floor set below the equilibrium price will result in a surplus.
a.
True
b.
False
False
17. Disequilibrium occurs due to the absence of government intervention in certain markets.
a.
True
b.
False
False
18. Rent controls generally provide the tenants the most efficient housing choice in the long run and maximize economic
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welfare.
a.
True
b.
False
False
19. A price ceiling set above the equilibrium price of a good will result in a shortage.
a.
True
b.
False
False
Multiple Choice
20. Other things constant, the demand for a product is the amount that:
a.
sellers are willing and able to sell at alternative prices.
b.
buyers purchase over different time periods.
c.
sellers are willing to sell at a particular price.
d.
buyers are willing and able to purchase at different prices.
e.
buyers are willing to consume at a constant price.
21. The law of demand states that:
a.
other things remaining constant, price and quantity demanded are positively related.
b.
price is the only factor that influences the quantity that people are willing and able to buy.
c.
other things remaining constant, quantity demanded varies inversely with price.
d.
other things remaining constant, the demand curve shifts whenever the price of a good changes.
e.
by producing a product, firms create a demand for it.
c
22. The law of demand states that as the price of a good rises, _____.
a.
buyers purchase more of the good, because they expect prices to be even higher in the future
b.
buyers purchase less of the good, because they expect prices to fall in the future
c.
buyers purchase less of the good, because their real income decreases with an increase in price
d.
buyers purchase more of the good, because the price of a substitute has risen
e.
buyers purchase more of the good, because the higher price reflects an improvement in product quality
c
23. A movement along a demand curve can be attributed to a change in:
a.
the demand for a good.
b.
the opportunity cost of producing a good.
c.
the quantity demanded of a good.
d.
the substitution effect of consuming a good.
e.
the income and preference of a consumer.
c
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24. Suppose you drink more tea because the price of coffee has increased. Which of the following best explains your
action?
a.
Positive relation between money income and demand
b.
Inverse relation between price and quantity supplied
c.
Substitution effect of a price change
d.
Income effect of a price change
e.
Positive relation between price and quantity demanded
c
25. Suppose a consumer can choose to consume either apples or oranges. Which of the following results when the price of
each fruit increases by 15 percent?
a.
The consumer substitutes apples for oranges.
b.
The income effect of this price change is positive.
c.
The substitution effect of this price change is zero.
d.
The consumer demands more of both the goods.
e.
The consumer substitutes oranges for apples.
c
26. For which of the following goods or services is the income effect of a price change likely to be the greatest?
a.
Vitamin capsules
b.
Gasoline
c.
Laundry
d.
Chocolates
e.
College textbooks
27. The following figure shows the demand curves for baby formula. Which of the following changes is likely to happen
if the price of baby formula increases?
Figure 4.1
a.
A shift in the demand curve from D1 to D2
b.
A movement along demand curve D1 from point a to point b
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Chapter 04: Demand, Supply, and Markets
c.
A shift in the demand curve from D2 to D1
d.
A movement along the demand curve D2 from point d to point c
e.
A movement from point b on the demand curve D1 to point c on the demand curve D2
28. The following figure shows the demand curves for baby formula. Which of the following changes is likely to happen
if the price of baby formula decreases?
Figure 4.1
a.
A shift in the demand curve from D1 to D2
b.
A movement along the demand curve D1 from point a to point b
c.
A shift in the demand curve from D2 to D1
d.
A movement along the demand curve D2 from point d to point c
e.
A movement from point b on the demand curve D1 to point c on the demand curve D2
29. The explanation for the law of demand begins with:
a.
a small number of wants satisfied by scarce resources.
b.
finite wants satisfied by infinite resources.
c.
unlimited wants confronting scarce resources.
d.
unlimited wants matching up with unlimited resources.
e.
prices acting as signals to existing and potential suppliers.
30. For a renter, the income effect of an increase in apartment rents will:
a.
have a greater impact than the income effect of an increase in the price of a chewing gum.
b.
be almost negligible, because everything except price is assumed constant along a demand curve.
c.
have less of an effect than the income effect of a decrease in the price of dairy products.
d.
be almost negligible, because housing is a necessity.
e.
have a greater impact than the positive substitution effect of this price change.
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31. The income effect of a decrease in the price of legal services, a normal good, is a(n):
a.
decrease in the demand for legal services.
b.
decrease in the quantity demanded of legal services.
c.
increase in the quantity supplied of lawyers.
d.
increase in the quantity demanded of legal services.
e.
increase in the supply of lawyers.
32. The income effect of a decrease in the price of potatoes, an inferior good, is a(n):
a.
increase in the demand for onions.
b.
decrease in the quantity demanded of potatoes.
c.
increase in the demand for potatoes.
d.
increase in the quantity demanded of potatoes.
e.
decrease in the demand for onions.
33. Studies show that the demand curve for peas has shifted over the years. Which of the following explanations would
you reject first?
a.
The price of string beans has changed.
b.
The demand for corn has changed.
c.
The demand for string beans has changed.
d.
The income of consumers has changed.
e.
The price of peas has changed.
34. The effect of a decrease in the price of personal computers on consumer demand, other things constant, is most likely
to be represented by a:
a.
leftward shift of the demand curve for personal computers.
b.
leftward movement along the demand curve for personal computers.
c.
rightward shift of the demand curve for personal computers.
d.
rightward movement along the demand curve for personal computers.
e.
decrease in the slope of the demand curve for personal computers.
35. The income effect of an increase in the price of backpacks, a normal good, is a(n):
a.
decrease in the demand for backpacks.
b.
decrease in the quantity of backpacks demanded.
c.
decrease in the supply of backpacks.
d.
increase in the quantity of backpacks demanded.
e.
increase in the quantity supplied of backpacks.
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36. Which of the following statements about a demand curve is true?
a.
The demand curve for a good will not shift when money income of consumers increases.
b.
If price increases, the demand curve shifts to the right.
c.
The demand curve for a good will not shift when its price changes.
d.
If a supply curve shifts, thereby changing the price, the demand curve will shift as well.
e.
If a demand curve shifts, the supply curve will shift as well, whether or not the price changes.
37. There are three consumers in the market for playing cards: Don, John, and Ron. At a price of $2 per pack, the
quantities demanded by each are 3 packs, 2 packs, and 1 pack, respectively. At a price of $1.50 per pack, the quantities
demanded by each are 4 packs, 5 packs, and 3 packs, respectively. Which of the following is true?
a.
The market demand curve for playing cards does not follow the law of demand.
b.
The decrease in price causes the quantity demanded in this market to increase by 6 packs.
c.
The price decrease causes Don’s demand curve to shift more than that of John and Ron.
d.
At a price of $1 per pack, the quantity demanded in this market must be 20 packs.
e.
Don’s behavior does not follow the law of demand.
38. If we say that demand for a good has increased, we mean that there has been:
a.
a leftward movement along the demand curve.
b.
a rightward movement along the demand curve.
c.
a leftward shift of the demand curve.
d.
a rightward shift of the demand curve.
e.
an increase in the slope of the demand curve.
39. A decrease in demand for a good generally implies that:
a.
consumers are willing to pay a higher price for each unit of the good.
b.
consumers are willing to buy larger quantities of the good at each price.
c.
the demand curve for the good has shifted to the right.
d.
the demand curve for the good has become steeper.
e.
the demand curve for the good has shifted to the left.
40. Which of the following is most likely to be an inferior good?
a.
Airline travel
b.
Restaurant meals
c.
A subscription to the Wall Street Journal
d.
Soft drinks
e.
Used clothing
41. If demand for personal computers increases as a result of an increase in income, _____.
a.
personal computers must be a normal good
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b.
personal computers must be an inferior good
c.
personal computers must be a complement
d.
the substitutes for personal computers must be inferior goods
e.
the complements for personal computers must be inferior goods
42. Which of the following is most likely to be a normal good?
a.
Bologna sandwiches
b.
Second-hand electronic appliances
c.
Tickets to major league baseball games
d.
Bus rides
e.
Used paperback books
43. In case of a normal good, an increase in consumers’ incomes would shift the:
a.
demand curve inward.
b.
supply curve inward.
c.
supply curve outward.
d.
supply and demand curves inward.
e.
demand curve outward.
44. The income effect refers to the impact of a change in:
a.
money income of consumers on the price of a good.
b.
the relative price of a good on the demand for other goods.
c.
the price of a good on a consumer’s real income.
d.
the price of a substitute good on a consumer’s budget.
e.
money income of consumers on the demand for a good.
45. Which of the following is the best example of substitute goods?
a.
Coffee and cream
b.
Videotapes and VCRs
c.
Money and biscuits
d.
Tortillas and salsa
e.
Powdered and liquid laundry detergent
46. Which of the following is most likely to cause the demand for ice cream, a normal good, to decrease?
a.
A decrease in the price of ice cream
b.
A decrease in the price of milk
c.
A warmer weather
d.
An increase in the number of consumers
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Chapter 04: Demand, Supply, and Markets
e.
A decrease in consumer income
47. Which of the following will cause the demand curve for gasoline to shift leftward?
a.
A decrease in the price of gasoline
b.
An increase in the price of gasoline
c.
A leftward shift of the supply of gasoline
d.
A rightward shift of the supply of cars
e.
An increase in the price of cars
48. Two goods are considered substitutes only if a(n):
a.
decrease in the demand for one good leads to a decrease in the supply of the other.
b.
increase in the demand for one good leads to a decrease in the supply of the other.
c.
increase in the price of one good leads to an increase in the demand for the other.
d.
decrease in the price of one good leads to an increase in the demand for the other.
e.
decrease in the supply of one good causes producers to switch to production of the other.
49. If the price of vanilla ice cream decreases, it is likely that:
a.
the demand for vanilla ice cream will increase.
b.
the demand for vanilla ice cream will decrease.
c.
the demand for chocolate ice cream will increase.
d.
the demand for chocolate ice cream will decrease.
e.
the quantity demanded of vanilla ice cream will decrease.
50. Which of the following will cause the demand curve for a normal good to shift to the right?
a.
A decrease in income
b.
An increase in the price of a complementary good
c.
A decrease in the price of the good
d.
An increase in the price of a substitute good
e.
An expectation of a future price decline
51. If butter and margarine are substitute goods, an increase in the price of butter is most likely to:
a.
shift the demand curve for margarine rightward.
b.
shift the demand curve for margarine leftward.
c.
increase the quantity of margarine demanded.
d.
decrease the quantity of margarine demanded.
e.
decrease the price of margarine.
52. Sugar and honey are viewed as substitutes for each other in many cooking applications. If the price of sugar rises, we
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Chapter 04: Demand, Supply, and Markets
would expect:
a.
the demand for honey to increase.
b.
the demand for honey to decrease.
c.
the quantity demanded of honey to decrease.
d.
the price of honey to decrease.
e.
the quantity demanded of honey to increase.
53. Which of the following is the best example of a pair of complements?
a.
Milk and coffee
b.
Coffee and tea
c.
CDs and DVDs
d.
Hiking boots and athletic shoes
e.
Paperback books and hard cover books
54. If Good B is a complement to Good A, then a decrease in the price of Good B:
a.
increases the quantity demanded of Good A.
b.
decreases the demand for Good A.
c.
increases the demand for Good A.
d.
decreases the quantity demanded of Good A.
e.
will cause the demand for Good B to increase.
55. Which of these can possibly account for a decrease in the demand for peanut butter, a normal good?
a.
An increase in the supply of peanut butter
b.
An increase in the price of peanut butter
c.
A substantial increase in the price of bread
d.
A drought in Georgia that destroyed 30 percent of the peanut crop
e.
An increase in consumer income
56. Which of the following statements about gold jewelry and round-trip bus tickets to Bismarck, North Dakota, is most
likely to be correct?
a.
They are both inferior goods.
b.
Their demand curves have equal slope.
c.
They are complements.
d.
They are substitutes.
e.
They are unrelated.
57. Jennifer expects the price of CDs to go up by 10 percent next week. Which of these is most likely to result from such
an expectation?
a.
Jennifer’s demand for CD players will decrease during this week.
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Chapter 04: Demand, Supply, and Markets
b.
Jennifer’s demand for CDs will decrease during this week.
c.
Jennifer’s demand for CDs will increase during the following week.
d.
Jennifer’s demand for CDs will increase during this week.
e.
Jennifer’s demand for CD players will increase during the following week.
58. Which of these is most likely to cause a leftward shift of the demand curve for a normal good?
a.
An increase in the price of the good
b.
A decrease in the price of the good
c.
A decrease in the price of a complementary good
d.
An expectation of a future price decline
e.
An increase in the price of a substitute good
59. Which of the following is likely to shift the demand curve for a normal good to the right?
a.
A decrease in income, if the good is a normal good
b.
An increase in the price of a complementary good
c.
A decrease in the good’s price, if the good is normal
d.
An increase in the good’s price, if the good is inferior
e.
An expectation of a shortage in the future
60. In the figure given below that shows the demand for baby formula, which of the following changes will be caused by
the discovery that breast milk provides more protection against a life threatening disease than baby formula?
Figure 4.1
a.
A shift in the demand curve from D1 to D2
b.
A movement along the demand curve D1 from point a to point b
c.
A shift in the demand curve from D2 to D1
d.
A movement along the demand curve D2 from point d to point c
e.
A movement from point b on the demand curve D1 to point c on the demand curve D2
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61. In the figure given below that shows the demand for baby formula, if baby formula is an inferior good, then an
increase in consumer income is likely to cause which of the following changes?
Figure 4.1
a.
A shift in the demand curve from D1 to D2
b.
A movement along the demand curve D1 from point a to point b
c.
A shift in the demand curve from D2 to D1
d.
A movement along the demand curve D2 from point d to point c
e.
A movement from point b on the demand curve D1 to point c on the demand curve D2
62. In the figure given below that shows the demand for baby formula, an increase in the birth rate is likely to cause which
of the following changes?
Figure 4.1
a.
A shift in the demand curve from D1 to D2
b.
A movement along the demand curve D1 from point a to point b
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Chapter 04: Demand, Supply, and Markets
c.
A shift in the demand curve from D2 to D1
d.
A movement along the demand curve D2 from point d to point c
e.
A movement from point b on demand curve D1 to point c on demand curve D2
63. Figure 4.2 shows the demand curves for a good. A shift from demand curve D to demand curve D’ in the figure would
be caused by a(n):
Figure 4.2
a.
decrease in the price of the good under consideration.
b.
significant increase in population because of immigration.
c.
decrease in consumer income.
d.
decrease in the number of producers of the product.
e.
increase in the price of an important resource.
64. Figure 4.2 shows the demand curves for a good. A shift from demand curve D’ to demand curve D in the figure below
would be caused by a(n):
Figure 4.2
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Chapter 04: Demand, Supply, and Markets
a.
increase in the price of the good under consideration.
b.
significant decrease in population because of emigration.
c.
increase in the price of a substitute good.
d.
decrease in the number of producers of the product.
e.
decrease in the price of an important resource.
65. A change in money income of consumers will:
a.
affect the demand for housing through the income effect of a price change.
b.
affect the demand for housing through the substitution effect of a price change.
c.
shift the market demand curve for housing.
d.
affect quantity demanded only if housing is an inferior good.
e.
have no impact on the market demand for housing.
66. As the baby boom ended, fewer families had young children and, as a consequence, the:
a.
quantity demanded of preschool services decreased.
b.
demand curve for preschool services shifted inward.
c.
supply curve for preschool services shifted outward.
d.
supply curve for preschool services shifted inward.
e.
quantity demanded of preschool services increased.
67. If the price of potato chips increases, other things constant, demand for potato chip dip will:
a.
decrease because potato chip is an inferior good.
b.
increase because the goods are substitutes.
c.
decrease because the goods are substitutes.
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Chapter 04: Demand, Supply, and Markets
d.
decrease because the goods are complements.
e.
increase because the goods are complements.
68. Which of the following best defines supply?
a.
The amount of a good that producers want to sell at a fixed price
b.
The amount of a good that consumers want to buy at different income levels
c.
The amount of a good that producers are willing and able to sell at each possible price, other things constant
d.
The amount of a good that is produced at the least possible cost, other things constant
e.
The amount of a good that consumers are willing and able to buy at each possible price, other things constant
c
69. Which of the following will lead to an increase in quantity supplied of a given good?
a.
An increase in resource prices
b.
A technological improvement
c.
An increase in population
d.
An increase in the price of the good
e.
An increase in the price of an alternative good
70. Producers supply larger quantities of any good at higher prices because:
a.
prices signal product quality.
b.
higher prices attract resources from other uses.
c.
people are naturally lazy and refuse to give up their leisure.
d.
price and quantity supplied are inversely related.
e.
of the law of decreasing opportunity cost.
71. As the price of milk increases, producers are generally willing to sell a larger quantity of milk in the market, other
things constant. This represents the law of:
a.
demand.
b.
decreasing opportunity costs.
c.
variable proportions.
d.
diminishing marginal utility.
e.
supply.
e
72. The figure given below shows the supply of baby formula. Which of the following is likely to result from an increase
in the price of baby formula?
Figure 4.3
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Chapter 04: Demand, Supply, and Markets
a.
A movement from point a to point b on the supply curve S1
b.
A leftward shift of the supply curve from S2 to S1
c.
A movement from point d to point c on the supply curve S2
d.
A rightward shift of the supply curve from S1 to S2
e.
A movement from point b to point a on the supply curve S1
73. Figure 4.4 shows the supply curve for a good. According to the figure given below, which of these will result when
price increases from P to P’?
Figure 4.4
a.
Quantity supplied will increase.
b.
Supply will become elastic.
c.
Supply will increase.
d.
Supply will become inelastic.
e.
Supply will decrease.
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74. The market supply curve of a particular product indicates the total quantities:
a.
that are actually sold during a given time period.
b.
that buyers are willing to purchase at alternative prices.
c.
that sellers are willing and able to offer at alternative prices.
d.
that sellers are willing to offer for sale at a fixed price.
e.
of complements offered for sale.
75. A supply curve typically slopes upward because:
a.
opportunity cost of production increases as quantity supplied increases.
b.
price and quantity supplied are inversely related.
c.
quantity supplied is positively related to consumer income.
d.
the substitution effect of a price change on quantity supplied is generally positive.
e.
the income effect of a price change on quantity supplied is generally negative.
76. Figure 4.3 shows the supply curves for baby formula. In the figure given below, the development of more efficient
production technologies for baby formula is likely to cause which of the following changes?
Figure 4.3
a.
A rightward shift of the supply curve from S1 to S2
b.
A movement from point a to point b on the supply curve S1
c.
A leftward shift of the supply curve from S2 to S1
d.
A movement from point c to point d on the supply curve S2
e.
A movement from point b to point a on the supply curve S1
77. Figure 4.3 shows the supply curves for baby formula. In the figure given below, which of the following changes is
likely to result from an increase in the number of firms producing baby formula?
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Chapter 04: Demand, Supply, and Markets
Figure 4.3
a.
A rightward shift of the supply curve from S1 to S2
b.
A movement from point a to point b on the supply curve S1
c.
A leftward shift of the supply curve from S2 to S1
d.
A movement from point c to point d on the supply curve S2
e.
A movement from point b to point a on the supply curve S1
78. Which of the following is most likely to shift the supply curve for a product to the right?
a.
An increase in the price of a resource used in the good’s production
b.
The expectation of a higher price in the near future
c.
An increase in the price of the product
d.
A decrease in the price of an alternative good
e.
An improvement in the technology for producing the good
79. Which of the following would most likely increase the supply of college textbooks?
a.
Exodus of five major publishers from the industry
b.
An increase in the cost of paper used in books
c.
An increase in the wage rate of workers associated with printing
d.
Expectation of a price rise in the future
e.
An improvement in the technology used in book production
80. The introduction of a new cost effective production technique is likely to:
a.
shift the demand curve leftward.
b.
make the demand curve flatter.
c.
shift the supply curve leftward.
d.
make the supply curve steeper.
e.
shift the supply curve rightward.
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81. Recently it has been discovered that lobsters grown on lobster farms can feed on algae, which is a cheaper lobster
food. As a result of this discovery, _____.
a.
the supply curve for lobster will shift to the left
b.
the supply curve for lobster will shift to the right
c.
there will be an increase in the quantity of lobsters supplied
d.
there will be a decrease in the quantity of lobsters supplied
e.
both supply and demand curves will shift to the right
82. Which of these is likely to decrease the supply of leather jackets?
a.
An increase in the price of leather jackets
b.
An increase in the price of leather
c.
A decrease in the price of zippers
d.
An increase in the demand for leather jackets
e.
A decrease in consumer income
83. Which of these is likely to increase the supply of vanilla ice cream?
a.
An increase in the price of vanilla beans, an ingredient in ice cream
b.
A decrease in the sales tax on ice cream
c.
An increase in the price of chocolate ice cream
d.
A decrease in the price of milk, an ingredient in ice cream
e.
An increase in the price of hot fudge
84. Which of the following would shift the supply curve of a good to the left?
a.
An increase in the price of that good
b.
A decrease in the price of an alternative good
c.
An improvement in technology used in producing the good
d.
An increase in the cost of an important resource used to produce the good
e.
An increase in the number of producers of the good
85. Which of these is likely to increase the supply of tomatoes in the market?
a.
The introduction of expensive mechanized tomato pickers
b.
An increase in the wage rate of tomato pickers
c.
A decrease in the cost of fertilizer for tomato plants
d.
Unseasonably hot, dry weather in the tomato-growing regions of the nation that affects crop yield
e.
A decrease in the price of tomato ketchup
86. If corn and soybean are alternative crops grown by most farmers, an increase in the price of corn is likely to: