Question

The demand of cosmetics suddenly increases in a certain region without any growth in supply. Economists predict that the increased demand will have three effects. Arrange those three effects in the order in which they will occur.

a) An increase in prices
b) A shortage of cosmetics
c) An increase in production

Answer 1

The sequence of effects due to increased demand for cosmetics with no change in supply is: 1) Shortage of cosmetics, 2) Increase in prices, and 3) Increase in production. These effects occur as the market responds to changes in demand and supply dynamics.

Step-by-step explanation:

When the demand for cosmetics suddenly increases in a region without any growth in supply, economists predict a sequence of three effects. According to standard economic theory, the order in which these effects occur is:

1. Shortage of cosmetics: Initial increase in demand leads to a situation where the quantity demanded exceeds the quantity supplied at the existing price, creating a shortage.
2. Increase in prices: Due to the shortage, prices are driven up as consumers compete for the limited supply of cosmetics available.
3. Increase in production: In response to higher prices, producers are incentivized to increase production to meet the higher demand, provided that they have the capacity to do so.

This sequence illustrates the dynamic interactions between demand, supply, and price in a market economy.