In general, when the supply of a certain commodity increases:

Study for the Indiana RECP Comprehensive Test. Utilize flashcards and multiple-choice questions, each with hints and explanations. Prepare to ace your exam!

When the supply of a certain commodity increases, the price tends to drop due to the basic principles of supply and demand in economics. An increase in supply means that there is more of the commodity available in the market than before. When the supply increases and demand remains constant, the surplus of goods leads sellers to lower prices in order to encourage sales and move excess inventory.

This relationship reflects the law of supply, which asserts that as the quantity supplied of a good increases, the price will generally decrease when demand does not change. Consequently, consumers have more options to choose from, which often results in more competitive pricing, thus driving prices down further.

The other options suggest different outcomes that may not align with the fundamental economic principles governing supply and demand. When supply increases, it does not inherently lead to a rise in prices or an increase in demand for the commodity; rather, the effect is usually a reduction in price in order to stimulate demand for the excess supply.

Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy