Answer to Question #117890 in Microeconomics for sareena

Question

the increase in the price of peanut butter, a 40 percent increase, was much
smaller than the increase in the price of peanuts, an increase from $450 to $1,200 or a 167
percent increase. Can you explain why?

Answer 1

Since peanut prices as a primary product are influenced by many factors independent of peanut consumers, such as weather conditions, price changes for equipment used during the cultivation and harvest of peanuts and more.

The price of peanut butter, which is more closely related to consumer preferences, their financial income, the number of buyers in the market, is affected to a lesser extent by the change in the price of peanuts. This paradox is possible with a high degree of influence of non-price demand factors.