GK
BUSINESS MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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If demand drops, profits drop.
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If demand drops, profits increase.
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If demand increases, profits drop.
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If demand drops, profits are not affected.
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Detailed explanation-1: -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-2: -A decrease in demand will cause the equilibrium price to fall; quantity supplied will decrease. An increase in supply, all other things unchanged, will cause the equilibrium price to fall; quantity demanded will increase.
Detailed explanation-3: -When the decrease in demand is greater than the decrease in supply, the demand curve shifts more towards left relative to the supply curve. Effectively, there is a fall in both equilibrium quantity and price.
Detailed explanation-4: -Inferior goods are the goods whose demand falls when consumer’s real income rises and whose demand rises when consumer’s real income falls. Hence, when the price of the inferior goods falls, the quantity demanded for them decreases.