According to economic theory, which of the following would be most likely to cause a reduction in the demand for hamburger?
options: a) an increase in the price of hamburger b) a technological advance that makes it less costly for households to make frozen hamburger patties c) a reduction in the price of chicken, a good substitute for hamburger d) a reduction in the price of hamburger
The correct answer and explanation is:
The correct answer is c) a reduction in the price of chicken, a good substitute for hamburger.
In economic theory, demand for a good is affected by factors such as the price of the good itself, the price of related goods, income levels, and consumer preferences. The demand curve shows the relationship between the price of a good and the quantity demanded. A reduction in the price of a substitute good is one of the factors that can lead to a decrease in the demand for a good.
When the price of chicken decreases, consumers may substitute chicken for hamburger if they consider the two goods to be close substitutes. As chicken becomes cheaper, some consumers may choose to buy chicken instead of hamburger, leading to a decrease in the demand for hamburgers. This is because the substitution effect makes consumers more likely to purchase the less expensive alternative.
Let’s break down the other options to better understand why they are not correct:
- a) an increase in the price of hamburger: While an increase in the price of hamburger will cause a reduction in the quantity demanded (according to the law of demand), it does not directly affect the overall demand. A higher price leads to a movement along the demand curve, not a shift of the curve itself.
- b) a technological advance that makes it less costly for households to make frozen hamburger patties: A technological advance would likely decrease the cost of producing hamburger patties, making them cheaper for consumers. This could increase the supply of hamburgers, not reduce demand. A shift in supply would affect the equilibrium price, which could lead to a reduction in the price of hamburgers and potentially an increase in the quantity demanded, not a decrease in demand.
- d) a reduction in the price of hamburger: A reduction in the price of hamburger would increase the quantity demanded, again moving along the demand curve. This would not reduce demand but would instead increase the quantity demanded.
Therefore, the most likely cause for a reduction in demand for hamburgers is a reduction in the price of a substitute good like chicken.