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 find it more profitable to produce more donuts to increase the supply of donut-holes. This increased production of donuts can lead to a surplus of donuts, causing the price of donuts to fall.

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