Can you explain the answer of this question below:In a free market economy, when consumers increase their purchase of a goods and the level of _______ exceeds ________ then prices tend to rise:A:Demand, supplyB:Supply, DemandC:Prices, DemandD:Profits, SupplyThe answer is a.

Question

Answer

In a free market economy, when consumers increase their purchase of goods and the level of demand exceeds supply, then prices tend to rise. Here's a detailed explanation:

- Demand: Demand refers to the quantity of a good or service that consumers are willing and able to purchase at a given price in a given time period. When demand increases, it means that consumers want to buy more of a particular good or service.
- Supply: Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at a given price in a given time period. It represents the availability of goods or services in the market.

When the level of demand exceeds the level of supply, it leads to the following consequences:
1. Shortage: A shortage occurs when the quantity demanded of a good or service is greater than the quantity supplied. In this situation, consumers are competing for the limited available goods, and this competition drives the prices up.
2. Price Increase: As a result of the shortage, producers are incentivized to increase the price of their goods or services. This is because they can earn higher profits due to the increased demand and limited supply.
3. Market Equilibrium Shift: When prices rise, the market moves towards a new equilibrium point where the quantity demanded and quantity supplied are equal. This occurs because higher prices discourage some consumers from buying the good or service, and at the same time, encourage producers to supply more of it to the market.

In summary, in a free market economy, when the level of demand exceeds the level of supply, it results in a shortage, leading to an increase in prices. This price increase helps to bring the market back to equilibrium by balancing the demand and supply forces.

Answer

When demand for a commodity increases but supply of that commodity does not increase according to demand then price of that commodity increase.

Answer

Ya muskan of course answer is a.
Actually when demand increases in an economy and supply reamins constant the price of that commodity rises.and when the supply becomes limited then also the price of commodity rises.

Answer

It is obvious that when consumers increase their purchase of a goods, then demand increases which has the possibility of exceeding the quantity supply. so a is the correct answer

Answer

Demand and Supply in a Free Market Economy

In a free market economy, the interaction between demand and supply determines the prices of goods and services. When consumers increase their purchase of a particular good, it affects the equilibrium between demand and supply, leading to changes in prices. The answer to this question is option A: Demand and Supply.

Explanation:

1. Demand:
- In a free market economy, demand represents the quantity of a good or service that consumers are willing and able to buy at a given price.
- Demand is influenced by factors such as consumer preferences, income levels, population, and price of related goods.
- When consumers increase their purchase of a particular good, it indicates a higher demand for that good.

2. Supply:
- Supply represents the quantity of a good or service that producers are willing and able to offer for sale at a given price.
- Supply is influenced by factors such as production costs, technology, government regulations, and price of inputs.
- When the supply of a good is less than the demand for that good, it is considered insufficient.

3. Equilibrium:
- In a free market economy, the equilibrium is the point where the quantity demanded equals the quantity supplied at a certain price.
- At equilibrium, there is no surplus or shortage of the good in the market.
- Changes in demand or supply disrupt the equilibrium, leading to adjustments in price.

4. Impact of Increased Demand:
- When consumers increase their purchase of a good, the demand for that good exceeds the supply available in the market.
- This creates a situation of excess demand or a shortage in the market.
- To restore equilibrium, suppliers may respond by increasing prices.

5. Price Mechanism:
- The price mechanism in a free market economy acts as a signal to allocate resources efficiently.
- When prices rise due to increased demand, it encourages suppliers to increase production and bring more of the good into the market.
- As supply increases, it eventually meets the demand, and prices stabilize.

Conclusion:

In a free market economy, when consumers increase their purchase of a good and the level of demand exceeds supply, prices tend to rise. This is because the excess demand creates a shortage in the market, leading to an increase in prices. The price mechanism then encourages suppliers to increase production, bringing the supply back in line with the demand, and stabilizing prices.

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