Theory of demand and supply
A MCQ stating that if in a theatre the price of potato chips is higher than that of the price of popcorn then the demand for popcorn will ______ and the supply of popcorn will_______ The answer is increase and increase I know that the demand for popcorn will increase but according to the law of supply the commodity whose price is low have lesser supply than that of the higher priced. So I thought the quantity supplied of popcorn will decrease, how come will it increase??
When you talk of most of the theories in economics you have to remember that there is something called ceteris paribus - which means all things remaining constant. It is applicable here too. Assuming there are in a theatre with 100 seats if there are 100 packs of popcorn and 100 packs of chips i.e supply is constant. If price of one increases, its demand increases and demand for a substitute increases. When you look at law of supply you have to assume that demand is constant i.e in a theatre with 100 seats there is a demand for 100 popcorn and 100 chips. If chips are priced cheaper, the supplier reduces supply of chips. Look at definitions of demand and supply and you will realize that they say everything else remaining constant if price rises there is a change in quantity demanded or supplied.