You notice that the price of butter rises and then falls. The best explanation for this is that __________.
demand for butter increased causing price to rise, which attracted other firms to enter the market causing supply to increase, which caused the price to go back down
demand for butter decreased causing price to rise, which attracted other firms to enter the market causing supply to increase, which caused the price to go back down
demand for butter increased causing price to rise, which induced other firms to exit the market causing supply to decrease, which caused the price to go back down
demand for butter increased causing price to rise, which attracted other firms to enter the market causing supply to decrease, which caused the price to go back down
Answer B
The best explanation for the rise and fall in the price of butter is that demand for butter decreased causing the price to initially rise. This increase in price then attracted other firms to enter the market, causing an increase in supply. As supply increased, the price of butter went back down. Therefore, the correct answer is B: demand for butter decreased causing price to rise, which attracted other firms to enter the market causing supply to increase, which caused the price to go back down.
The best explanation for the rise and fall in the price of butter is answer B: "demand for butter decreased causing price to rise, which attracted other firms to enter the market causing supply to increase, which caused the price to go back down."
To understand why this is the best explanation, we need to consider the relationship between demand and supply in the market for butter. When the demand for butter decreases, it means that consumers are buying less butter at the current price. In response to this lower demand, suppliers may continue to produce butter at the same rate, resulting in a surplus of butter in the market.
As a result, to reduce their inventory, butter suppliers may lower the price of butter. This lower price may then attract other firms to enter the market because the lower price makes it more profitable for them to produce and sell butter. With more firms producing and selling butter, the supply increases.
The increase in supply helps to alleviate the surplus and brings the market back into equilibrium. As a result, the price of butter goes back down. This is known as the law of supply and demand, where changes in supply and demand have an inverse relationship with price.
Therefore, answer B provides the most accurate explanation for why the price of butter rises and then falls: a decrease in demand leads to a higher price, which attracts more firms to enter the market, increasing the supply and causing the price to go back down.