Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Equilibrium price decreases and output decreases for the industry
B
Equilibrium price increases and output increases for the industry
C
Equilibrium price remains unchanged, but output decreases for the industry
D
Equilibrium price decreases while output remains unchanged for the industry
Understanding the Answer
Let's break down why this is correct
Answer
When consumer income decreases, people have less money to spend, so they buy fewer goods, including dairy products. This change leads to a shift in the demand curve to the left, meaning that at every price level, the quantity demanded is now lower. In a perfectly competitive market, this decrease in demand causes the equilibrium price to fall because suppliers need to lower prices to sell their products. As a result, the output or quantity of dairy products produced will also decrease, as producers respond to the lower prices by reducing their production. For example, if the price of milk drops due to lower demand, dairy farms might produce less milk to avoid losses, reflecting the new market conditions.
Detailed Explanation
When people have less money, they buy less milk. Other options are incorrect because This answer suggests that people will buy more milk when they have less money; This option says prices stay the same, but that's incorrect.
Key Concepts
Market Demand
Equilibrium Changes
Profit Maximization
Topic
Market Demand and Equilibrium Changes
Difficulty
medium level question
Cognitive Level
understand
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