1)Why is this statement wrong: \"Economists argue that lower prices will result
ID: 1191202 • Letter: 1
Question
1)Why is this statement wrong: "Economists argue that lower prices will result in fewer units being supplied. However, there are exceptions to this rule. For example, in 1972, a very simple 10-digit electronic calculator sold for $120. By 2000, the price of the same type of calculator had declined to less than $5. Yet business firms produced and sold many more calculators in 2000 than they did in 1971. Lower prices did not result in less production or in a decline in the number of calculators supplied."
a)The statement ignores changes in quantity demanded.
b)The statement ignores changes in tastes.
c)The statement ignores changes in the cost of production.
d)The statement ignores changes in demand.
Explanation / Answer
Correct option (c).
If cost of production gets lower, producers will sell even at a lower price since their production cost is lower now. From 1972 to 2000, production cost of calculators has decreased exponentially, therefore price also has decreased. The statement ignores this aspect of demand-supply interaction.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.