Refer to the fiGure

question 170

Multiple Choice

Refer to the figure. Assuming this market is representative of the economy as a whole, a negative demand shock will

• A) cause inflation.
• B) increase unemployment.
• C) lower prices but leave output unaffected.
• D) reduce both prices and output.

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Definitions:

Equilibrium Quantity

The quantity of a good or service at which demand meets supply.

Supply Decreases

A situation in which the quantity of a product or service offered in the market declines due to various factors like increased production costs or reduced number of suppliers.

Invisible Hand Concept

A term coined by Adam Smith to describe the self-regulating nature of the marketplace, guiding individuals to contribute to economic activities that benefit society.

Economic Welfare

The overall well-being and standard of living of individuals within an economy, often evaluated through measures like wealth, health, and happiness.