Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Demand decreases, leading to lower prices and output for firms.
B
Demand increases, resulting in higher prices and output.
C
Demand remains unchanged, but firms increase production.
D
Demand decreases, causing prices to rise and output to fall.
Understanding the Answer
Let's break down why this is correct
Answer
When consumer income decreases, people generally have less money to spend, which can lead to a drop in demand for many products, including dairy products. In a perfectly competitive dairy market, this means that consumers may buy less milk, cheese, and yogurt because they might choose cheaper alternatives or reduce their overall consumption. As demand decreases, the demand curve shifts to the left, which leads to lower prices for dairy products. For example, if a family that usually buys two gallons of milk a week now only buys one due to tighter finances, this reduced demand affects the overall market. As prices fall, dairy farmers may sell less, and the market reaches a new equilibrium where the quantity of dairy sold is lower than before.
Detailed Explanation
When people have less money, they buy less milk. Other options are incorrect because Some might think that less income means people buy more; It's a common mistake to think that demand stays the same.
Key Concepts
Market Demand
Equilibrium Changes
Profit Maximization
Topic
Market Demand and Equilibrium Changes
Difficulty
easy level question
Cognitive Level
understand
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