Question

Consumers perceive bread and tortillas are substitutes. What happens in the market for bread when the price of tortillas increases?

		Supply of bread increases
		Supply of bread decreases
		Demand for bread increases
		Demand for bread decreases

Answer 1

Cross-price elasticity of demand= % change in the quantity demand/ % change in the price

When the cross-price elasticity demand sign is positive, then both goods will be substitute goods.

The price of substitute goods and demand for its substitute goods are positively related.

Consumers perceive bread and tortillas are substitutes. So when the price of tortillas increases, quantity demand for bread also increases, and demand curve of bread shifts rightward.

Hence option third is the correct answer.