Question

If, due to rising demand, the price of cotton rose 10 percent while the prices of other goods and services rose an average of 15 percent.

A. the relative price of cotton has risen and one would expect the output of cotton to rise as a result. 

B. the relative price ofcotton has risen and one would expect the output of cotton to fall as a result. 

C. the relative price of cotton has fallen and one would expect the output of cotton to rise as a result. 

D. the relative price ofcotton has fallen and one would expect the output of cotton to fall as a result.

Answer 1

According to law of demand when the relative price of a good or a service goes up than the demand for that good or service will fall as people will demand less quantity at a higher price.

We can see that over all price level of all goods went up along with cotton. So there will be effect on the supply of these goods quantity as the demand for the goods and services will fall.

Answer: B

Relative price of cotton has risen one would expect the output of cotton will fall.