Rising prices for a product
A) create incentives for consumers to find cheaper substitutes.
B) eliminate shortages.
C) create incentives for businesses to produce more.
D) decrease quantity demanded of the product.
E) do all of the above.

Question

Quizplus · Accepted Answer

Rising prices for a product create a chain reaction of economic effects. Firstly, it creates incentives for consumers to find cheaper substitutes (A), as the demand for the product decreases due to the high price. At the same time, it eliminates shortages (B) as businesses realize the opportunity for profit and increase the supply. This increased production also creates incentives for businesses to produce more (C), as they can earn more from selling more due to the high prices. Ultimately, these actions result in a decrease in quantity demanded of the product (D), which brings the prices back down to a market equilibrium. Therefore, all of the above options are true.

Rising Prices for a Product