Question

The new oven in Mr. Brown's bakery allows him to produce bread more efficiently and more cheaply. What is the MOST LIKELY effect? A) the price drops and the quantity demanded decreases B) the price rises and the quantity demanded decreases C) the price drops and the quantity demanded increases D) the price rises and the quantity demanded increases

Answer 1

C) the price drops and the quantity demanded increases

Answer 2

The correct answer is C. The price drops and the quantity demanded increases

Step-by-step explanation:

According to economic theories, there is a close relationship between price, supply, and demand. In this way, an increase in the supply (availability of a good) leads to a lower price, at the same time a low price increases the demand (number of goods customer buy).

This implies in the case of Mr. Brown's bakery it is expected the price drops as a result of the increase in supply (bread) especially because production became more efficient and cheap; besides this, the drop in prices should lead to an increase in the demand due to the product being more affordable (Option C).