Question

Assume the demand for watermelons is downward sloping. A decrease in price from $3 per pound to $2 per pound

a. Could have been caused by an increase in supply

b. Will cause an increase in supply

c. Will cause a smaller quantity of watermelons to be demanded

d. Will cause demand to decrease

e. Will cause demand to increase

Answer 1

Answer is option a)

Since price of product has fallen, so consumers will demand more,

So a higher quantity of watermelon will be Demanded. So option c is incorrect.

Since only price has changed thus only quantity demanded will change oy, no change in Demand which is affected by the change in parameters like income, taste , preferences.

So option d & e are false.

Thus if supply of a product rises, then it's price falls, so option a is right .

Fall in price will not cause the increase in supply