An Increase in Demand for a Product and a Reduction

question 194

Multiple Choice

An increase in demand for a product and a reduction in the costs of production would:

• A)cause a persistent shortage of the product.
• B)encourage firms to exit the industry.
• C)increase profits.
• D)encourage firms to enter the industry.
• E)both increase profits and encourage firms to enter the industry.

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Definitions:

Government Expenditures

Spending by the government on goods, services, and obligations, including salaries, infrastructure projects, and social benefits.

Price Level

Price level refers to the average of current prices across the entire spectrum of goods and services produced in the economy, a measure of inflation or deflation.

Inflation Rate

The percentage increase in the general price level of goods and services in an economy over a period of time, typically a year.

Consumer Confidence

Consumer confidence is a measure of how optimistic or pessimistic consumers are about their expected financial situation and the overall state of the economy.