Question

Using the supply and demand curve above, which statement is TRUE? A) By decreasing the price from $3.50 (P1) to $2.60 (P2), supply decreases. B) By decreasing the price from $3.50 (P1) to $2.60 (P2), demand decreases. C) By decreasing the price from $3.50 (P1) to $2.60 (P2), the quantity of supply decreases. D) By decreasing the price from $3.50 (P1) to $2.60 (P2), the quantity of demand decreases.

Answer 1

The correct answer is C: by decreasing the price from $3.50 (P1) to $2.60 (P2), the quantity of supply decreases.

Explanation:

The supply and demand curve demonstrates that there is an inverse relationship between price and demand. It means that if the price increases, demand will decrease. Also, it shows that supply is directly related to price. Therefore, suppliers may provide more products or services if their price increases. Accordingly, by decreasing the price of the merchandise, the quantity of supply decreases. It is important to keep into account that these both economic forces fix a balance of the prices of things in the market. Option A is quite similar but does not include the technical term “quantity”, which validates option C as the correct one.