Rising Input Costs Boost 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 switch to substitute non-leather shoes as leather shoes become more expensive.
• This increases demand for substitute shoes, shifting their demand curve right.

Why B is correct:

• Per the cross-price elasticity of demand, a price rise in leather shoes (due to higher input costs) makes substitutes relatively cheaper, increasing their demand and shifting the curve right.

Why the others are wrong:

• A: Demand for leather stays the same; higher price causes movement up along the demand curve, reducing quantity demanded.
• C: Higher leather costs decrease leather shoe supply, shifting the curve left, not right.
• D: Substitute material supply is unaffected by leather price; no shift occurs.

Final answer: B