Suppose the price of pepperoni falls. In the market for pizza, in which pepperoni of a popular ingredient, one would expect that

1 the supply of pizza would increase, and the price would fall
2 the demand for pizza would increase, and the price would increase
3. the demand for pizza would decrease, and the price would fall
4. the supply of pizza would decrease, and the price would rise

Option (1) is correct.

Explanation:

The pepperoni is the ingredient of pizza and used as an input in the market of pizza. Hence, if there is a fall in the price of the pepperoni then as a result this will reduce the cost of production of pizza makers.

This would increase the supply of pizza and there is a fall in the price of pizza because of lower cost of production of pizza. There is a rightward shift in the supply curve of pizza.

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