Use the options below to indicate either the change in Supply or Demand curve for each of the following situations.
Economic prosperity gives more people a greater income:
A. demand increase
B. demand decrease
C. supply increase
D. supply decrease
A new machine allows factories to produce greater amounts:
A. demand increase
B. demand decrease
C. supply increase
D. supply decrease
A severe drought causes massive shortages for food producers:
A. demand increase
B. demand decrease
C. supply increase
D. supply decrease
The FDA announces the harmful health effects of several beauty products:
A. demand increase
B. demand decrease
C. supply increase
D. supply decrease
A severe drought causes massive shortages for food producers:
C. supply increase
The FDA announces the harmful health effects of several beauty products:
B. demand decrease
Economic prosperity gives more people a greater income:
This situation would lead to an increase in demand. Therefore, the correct answer is:
A. demand increase
A new machine allows factories to produce greater amounts:
This situation would lead to an increase in supply. Therefore, the correct answer is:
C. supply increase
A severe drought causes massive shortages for food producers:
This situation would lead to a decrease in supply. Therefore, the correct answer is:
D. supply decrease
The FDA announces the harmful health effects of several beauty products:
This situation would lead to a decrease in demand. Therefore, the correct answer is:
B. demand decrease
For the first situation, "Economic prosperity gives more people a greater income," the correct answer is A. demand increase. This is because when people have more income, they are likely to spend more on goods and services, leading to an increased demand.
To understand this, you can think of it in terms of basic economics. When people's income increases, their purchasing power increases as well. As a result, they are willing and able to buy more goods and services. This increased willingness and ability to buy leads to a shift in the demand curve to the right, indicating an increase in demand.
For the second situation, "A new machine allows factories to produce greater amounts," the correct answer is C. supply increase. This is because when factories are able to produce greater amounts of goods, it leads to an increase in the supply of those goods.
To comprehend this, consider that an increase in production capacity allows manufacturers to produce more output at any given price level. This shift in the supply curve to the right indicates that at each price, more quantity is supplied. Hence, the supply curve increases resulting in an increase in supply.
For the third situation, "A severe drought causes massive shortages for food producers," the correct answer is D. supply decrease. This is because a drought negatively affects food production, leading to a decrease in the supply of food.
Understanding this, you can recognize that drought reduces the availability of resources like water, which are essential for food production. As a result, the ability of food producers to supply food decreases, leading to a shift in the supply curve to the left, indicating a decrease in supply.
Finally, for the fourth situation, "The FDA announces the harmful health effects of several beauty products," the correct answer is B. demand decrease. This is because when the FDA warns about the harmful health effects of beauty products, it can lead to a decrease in consumer demand for those products.
To comprehend this, consider that when consumers become aware of the potential harmful effects of a product, their demand for it tends to decrease. This shift in the demand curve to the left indicates a decrease in demand, as consumers are less willing to purchase products that may harm their health.