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 cause 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 South East 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

The idea that changes in one market can cause effects in previously unseen markets is demonstrated in option B. The increase in demand for bicycles due to higher oil prices causes an increase in the demand for rubber to make bicycle tires. This leads to a switch in production from rice to rubber in South East Asian farmers, which then causes the price of rice to increase. This chain reaction shows how changes in one market can have a ripple effect on other markets.

Higher Oil Prices Represent Higher Energy Costs in General Across