When supply increases and demand decreases, which of the following happens to the price of a good?
A.
it increases
B.
it stays the same
C.
it decreases
D.
it is unaffected
My answer is A. Is this right?
huh?
It stays the same
It is unaffected
How are they not the same thing?
No, that is not right unfortunately.
and why are B and D the same answer?
Oh yeah, my bad. But those were answers. I didn't put the same thing twice.
To determine the effect on the price of a good when supply increases and demand decreases, we need to understand the basics of supply and demand.
The law of supply states that as the quantity supplied of a good increases, other factors remaining constant, the price of the good will decrease. On the other hand, the law of demand states that as the quantity demanded decreases, other factors remaining constant, the price of the good will also decrease.
In this scenario, when supply increases, it means that more of the good is being produced and supplied to the market. This higher supply leads to an excess supply or surplus in the market.
When demand decreases, it means that consumers are buying less of the good, leading to a decrease in the quantity demanded.
When there is an excess supply or surplus in the market and the quantity demanded decreases, suppliers are left with more goods than consumers wish to purchase. To sell all the excess inventory, suppliers often resort to lowering the price of the good to encourage consumers to buy.
Therefore, when supply increases and demand decreases, the price of a good typically decreases, which means the correct answer to your question is C. The price decreases.
It is important to note that market forces can be more complex and there may be other factors at play, such as elastic or inelastic demand or supply, which may affect the extent of the price change. However, in general terms, the price of a good is expected to decrease in this scenario.