ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The Substitution Effect When the price of pizza rises, pizza becomes more expensive compared with other foods, such as tacos and salads. So, as the price of a slice of pizza rises, consumers have an incentive to buy one of those alternatives as a substitute for pizza. This causes a drop in the amount of pizza demanded.

Detailed explanation-2: -An increase in the price of a good will (ceteris paribus) increase demand for its substitutes, while a decrease in the price of a good will decrease demand for its substitutes, see Figure 2.

Detailed explanation-3: -Because of the Law of Demand-which says that as the price of a good increases, the quantity demanded decreases-we know that as the price of pizza goes up, you’ll buy less pizza, whereas if the price of pizza goes down (or was free!) you’d probably buy (or take) more.

Detailed explanation-4: -A rise or fall in the price of pizza will cause the quantity supplied to change, but not the supply schedule. In other words, a change in a good’s price moves the seller from one row to another in the same supply schedule, but does not require us to create a new supply schedule.

Detailed explanation-5: -(D) a change in consumers tastes and preferences for donuts. When the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower.