The diagram below represents a situation in which consumers have underestimated the benefits associated with the consumption of a product. The current demand is D and the current supply curve is S.
Which of the following changes in demand and supply would reduce this under-consumption?
Select ONE answer:
- Demand – Extension / Supply – Increase / Price – Decrease
- Demand – Increase / Supply – Contraction / Price – Increase
- Demand – Decrease / Supply – Contraction / Price – Increase
- Demand – Contraction / Supply – Increase / Price – Decrease
Show your workings to arrive at your answer, and explain and justify your reasons:……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
This multiple choice question is suitable for Economics KS5 classes.
The answer is 1
- Correct: An increase in supply, reduction in price and extension in supply would result in a greater quantity being consumed.
- An increase in demand would increase price but supply would have to extend and not contract to result in a reduction in under-consumption.
- A decrease in demand would cause the price to fall rather than increase and will increase the problem of under-consumption.
- An increase in supply would cause a decrease in price but an extension in demand rather than a contraction and an extension in demand would be needed to reduce under-consumption.
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