ECONOMICS
DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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discourage consumers from seeking a substitute.
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discourage producers from leaving a market.
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motivate consumers to buy.
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motivate producers to enter the market.
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Detailed explanation-1: -The law of demand states that consumers buy more of a good when its price decreases and less when its price increases. The law of demand is the result of two separate behavior patterns that overlap, the substitution effect and the income effect.
Detailed explanation-2: -A price decrease has both substitution and an income effect. The substitution effect states that because the product is less expensive in comparison to other items the consumer buys, he or she will buy more of it (and less of the other things).
Detailed explanation-3: -Economists call this the Law of Demand. If the price goes up, the quantity demanded goes down (but demand itself stays the same). If the price decreases, quantity demanded increases. This is the Law of Demand.
Detailed explanation-4: -In terms of supply, higher prices encourage supply, given the supplier’s expectation of higher revenue and profits, and hence higher prices reduce the opportunity cost of supplying more. Lower prices discourage supply because of the increased opportunity cost of supplying more.