Higher oil prices represent higher energy costs in general across the economy leading to increased use of bicycles and public transportation. Which answer BEST describes the idea that changes in one market can produce effects in previously unseen markets?
A) The rise in the demand for bicycles causes a rise in the price of bicycles.
B) Increased bicycle demand increases the demand for rubber to make bicycle tires. Farmers in Southeast Asia switch from rice to rubber production and the price of rice increases.
C) The greater demand for public transportation offsets the demand for heating oil.
D) The rise in the demand for oil causes a rise in the demand for bicycles.

Question

Quizplus · Accepted Answer

This answer correctly identifies the concept of unintended consequences or spillover effects. The increase in demand for bicycles due to higher energy costs leads to a higher demand for rubber to make bicycle tires. This increase in rubber demand causes farmers in Southeast Asia to switch from growing rice to rubber, which reduces the supply of rice, causing the price of rice to increase. This shows how changes in one market can affect other markets that are seemingly unrelated.

Higher Oil Prices Represent Higher Energy Costs in General Across