ECONOMICS
MARKETS AND PRICES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Both the supply of and demand for the good decrease.
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Both the supply of and demand for the good increase.
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The decrease in supply is more than the decrease in demand.
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The increase in supply is smaller than the decrease in demand.
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Detailed explanation-1: -Changes in factors like average income and preferences can cause an entire demand curve to shift right or left. This causes a higher or lower quantity to be demanded at a given price. Ceteris paribus assumption. Demand curves relate the prices and quantities demanded assuming no other factors change.
Detailed explanation-2: -An increase in supply. This decreases the price and and increases the quantity. An increase in supply happens when prices also increase. However, as the market becomes saturated with the same product, the prices start decreasing.
Detailed explanation-3: -As we can see on the demand graph, there is an inverse relationship between price and quantity demanded. 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.
Detailed explanation-4: -A decrease in demand is a result of a decrease in income, a decrease in the price of substitutes, an increase in the price of complementary goods, a decrease in population, and when goods go out of fashion.