Prices Of Other Goods

Firms that produce a particular product, say, soccer balls, can sometimes use their plant and equipment to produce alternative goods, say, basketballs and volleyballs. The higher prices of these "other goods" may entice soccer ball producers to switch production to those other goods in order to increase profits. This substitution in ro-duction results in a decline in the supply of soccer balls. Alternatively, when the prices of basketballs and volleyballs decline relative to the price of soccer balls, producers of those goods may decide to produce more soccer balls instead, increasing their supply.

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