If the Demand for a Product Decreases, What Would We

question 297

Multiple Choice

If the demand for a product decreases, what would we expect?

• A) equilibrium price to increase and equilibrium quantity to decrease
• B) equilibrium price to decrease and equilibrium quantity to increase
• C) equilibrium price and equilibrium quantity to both increase
• D) equilibrium price and equilibrium quantity to both decrease

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Definitions:

Margin of Safety

The difference between actual or expected sales and sales at the break-even point. It measures how close a company is to not covering its fixed costs.

Break-even Sales

The amount of revenue from sales that exactly covers the fixed and variable costs of producing and selling a product, with no profit or loss.

Pretax Net Income

The amount of money a company has earned before taxes are deducted.

Fixed Costs

Expenses that do not fluctuate with the volume of production or sales, such as rent, salaries, and insurance.