A student writes the following: “Increased production leads to a lower price, wh
ID: 1138523 • Letter: A
Question
A student writes the following: “Increased production leads to a lower price, which in turn increases demand.” Do you agree with his/her reasoning? Explain why, or why not. Use a diagram to explain your answer.A student writes the following: “Increased production leads to a lower price, which in turn increases demand.” Do you agree with his/her reasoning? Explain why, or why not. Use a diagram to explain your answer.
A student writes the following: “Increased production leads to a lower price, which in turn increases demand.” Do you agree with his/her reasoning? Explain why, or why not. Use a diagram to explain your answer.
Explanation / Answer
The student’s reasoning is incorrect. He should have said: ‘Increased production shifts the supply curve to the right and leads to a lower equilibrium price but a higher equilibrium quantity and therefore a larger quantity demanded. The increase in quantity demanded is a result of a supply curve shifting to the right and a movement along the demand curve, but the demand curve does not shift.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.