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. demand increase
C. supply increase
Economic prosperity gives more people a greater income:
This situation would lead to an increase in demand as people have more disposable income to spend. Therefore, the answer is A. demand increase.
A new machine allows factories to produce greater amounts:
This situation would lead to an increase in supply as the new machine allows factories to produce more goods. Therefore, the answer is C. supply increase.
In the first situation, "Economic prosperity gives more people a greater income," we need to determine whether it will cause a change in the supply or demand curve.
To do this, we need to understand the relationship between income and consumer behavior. When people have a greater income, they generally have more purchasing power, which can lead to changes in market activity.
In terms of the options provided:
A. Demand increase: This option suggests that an increase in income will lead to an increase in consumer demand. This is a logical possibility because when people have more money, they are likely to spend more, which could increase the demand for goods and services.
B. Demand decrease: This option suggests that an increase in income will lead to a decrease in consumer demand. This is unlikely because higher income generally leads to increased spending and demand.
C. Supply increase: This option suggests that an increase in income will lead to an increase in supply. However, income itself does not directly affect the ability of firms to supply goods or services. Therefore, this option is not appropriate for this situation.
D. Supply decrease: This option suggests that an increase in income will lead to a decrease in supply. Similar to option C, an increase in income does not directly impact the supply side of the market.
Therefore, the correct option for the situation "Economic prosperity gives more people a greater income" is A. Demand increase, indicating that an increase in income would lead to an increase in consumer demand.
Now, let's move on to the next situation: "A new machine allows factories to produce greater amounts."
In this case, we are looking for the effect of the new machine on the supply or demand curve.
Looking at the options:
A. Demand increase: This option suggests that the availability of the new machine will lead to an increase in consumer demand. However, the introduction of a new machine does not directly impact consumer demand; it affects the production capabilities of the firms.
B. Demand decrease: This option suggests that the new machine will lead to a decrease in consumer demand. Again, the introduction of a new machine does not directly impact consumer demand.
C. Supply increase: This option indicates that the new machine will lead to an increase in the supply of goods or services. This is the correct option because when factories are able to produce greater amounts, it means that their supply capacity has increased.
D. Supply decrease: This option suggests that the new machine will lead to a decrease in supply, which is not accurate in this case.
Therefore, the correct option for the situation "A new machine allows factories to produce greater amounts" is C. Supply increase.