Input Cost Increase Affects Substitute Demand

Steps:

• Leather shortage raises its price, increasing production costs for leather shoes.
• Higher costs reduce supply of leather shoes, shifting their supply curve left.
• Consumers seek alternatives, increasing demand for shoe substitutes.
• Demand curve for substitutes shifts right due to higher relative price of leather shoes.

Why B is correct:

• Per cross-price elasticity of demand, a price rise in leather shoes boosts demand for substitutes, shifting their demand curve right.

Why the others are wrong:

• A: Demand for leather shoes unchanged; only supply decreases from higher costs.
• C: Supply curve for leather shoes shifts left, not right, due to cost increase.
• D: Higher leather prices reduce supply of leather substitutes only if they use leather; no direct shift right for non-leather alternatives.

Final answer: B