BACHELOR OF BUSINESS ADMINISTRATION

BUSINESS ADMINISTRATION

BUSINESS ENVIRONMENT

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
If a product is in short supply, what generally occurs?
A
The price drops
B
The demand increases
C
The price rises
D
The price is unaffected
Explanation: 

Detailed explanation-1: -If there is a decrease in supply of goods and services while demand remains the same, prices tend to rise to a higher equilibrium price and a lower quantity of goods and services. The same inverse relationship holds for the demand for goods and services.

Detailed explanation-2: -Supply is generally considered to slope upward: as the price rises, suppliers are willing to produce more. Demand is generally considered to slope downward: at higher prices, consumers buy less.

Detailed explanation-3: -The increase in the general level of prices may be caused by many factors like an increase in the money supply, a decrease in the aggregate level of output, an increase in the effective demand, an increase in income, the rapid growth of population, etc.

Detailed explanation-4: -The price will rise until the shortage is eliminated and the quantity supplied equals quantity demanded. In other words, the market will be in equilibrium again.

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