A new fad dramatically increases the demand for donut-holes, the leftovers produced from donut production. According to economic theory, one would expect
A)the price of donuts to rise.
B)the price of donuts to fall.
C)the price of donuts to stay the same.
D)that one cannot tell.

Question

Quizplus · Accepted Answer

When the demand for donut-holes increases, producers may increase donut production to meet this demand, leading to a surplus of donuts. This surplus can cause the price of donuts to fall.

A New Fad Dramatically Increases the Demand for Donut-Holes, the Leftovers