Question

Suppose that in the clothing market, production costs have fallen, but the equilibrium price and quantity purchased have both increased. Based on this information we can conclude that:

A. The supply of clothing has grown faster than the demand for clothing.
B. Demand for clothing has grown faster than the supply of clothing.
C. The supply of and demand for clothing have grown by the same proportion.
D. There is no way to determine what has happened to supply and demand with this information.

Answer 1

When production costs in the clothing market fall and the equilibrium price and quantity purchased increase, it suggests that the demand for clothing has grown faster than the supply of clothing.

Step-by-step explanation:

When production costs in the clothing market fall, it leads to a decrease in the supply curve. However, if the equilibrium price and quantity purchased both increase, it suggests that the demand for clothing has grown faster than the supply of clothing. This can be due to factors such as an increase in consumer income or changes in fashion trends.

For example, if advancements in technology allow clothing manufacturers to produce clothing at a lower cost, they can offer more clothing at the same price. If consumers respond to this by purchasing more clothing, it indicates an increase in demand for clothing. In this case, the supply of clothing has not grown faster than the demand.