Final answer:
The second group of students suggests that the price of chicken wings increased due to the decrease in the price of French fries, potentially explained by substitution and income effects in consumers' behavior. While the substitution effect might prompt consumers to buy more of the cheaper good (fries), it somehow resulted in an increase in chicken wings price, perhaps due to supplier reactions or an unrelated increase in demand. Additionally, the income effect may give consumers more disposable income to spend on chicken wings, pushing up their price.
Step-by-step explanation:
The explanation provided by the second group of students regarding the price increase in chicken wings being attributed to the decrease in the price of French fries can be analyzed using the concepts of substitution effect and income effect. These are common reactions to price changes in the market that affect both consumers and producers. When the price for French fries falls, according to the substitution effect, consumers might start buying more French fries due to the lower cost, substituting them for other foods, which could include chicken wings.
This decrease in demand for chicken wings could in theory lead to a decrease in price; however, the scenario presented indicates that the price of chicken wings has increased. To understand this, one might consider that if producers of chicken wings perceive a decrease in demand due to the shift in consumption towards French fries, they might decrease their supply to maintain their pricing power, which in turn would lead to higher prices in the market. This situation may also reflect an increase in demand for chicken wings from another source, one that is strong enough to override the substitution effect caused by the cheaper French fries.
Additionally, the income effect may be at play. If consumers are spending less money on French fries due to the lower price, they might have more disposable income. This increase in purchasing power could actually enhance the demand for chicken wings, potentially driving up the price. The economic principles indicate that buyers’ and sellers’ reactions to price changes are motivated by maximizing utility and profit, respectively, and that prices serve as signals that guide economic decisions, leading to adjustments in both production and consumption.