Question

a brass manufacturer lowers its prices when a competitor moves into the same city. how will this affect the supply or demand of the brass products?

the quantity demanded will decrease as the product price decreases.
the quantity demanded will increase as the product price decreases.
the quantity supplied will decrease as the production costs increase.
the quantity supplied will increase as the production costs decrease.

Explanation:

Analyze the market event

The scenario states that a brass manufacturer lowers its prices in response to a competitor moving into the same city. The primary change occurring here is a decrease in the price of the brass products.

Apply economic principles

According to the Law of Demand, there is an inverse relationship between the price of a good and the quantity demanded of that good, assuming all other factors remain constant (ceteris paribus). When the price of a product decreases, consumers are willing and able to buy more of it.

Distinguish demand vs quantity demanded

A change in the price of the good itself causes a movement along the existing demand curve. This movement is described as a change in the "quantity demanded," rather than a shift in the entire "demand" curve. Therefore, a decrease in price leads to an increase in the quantity demanded.

Evaluate the options

• Option 1 states quantity demanded decreases as price decreases, which violates the Law of Demand.
• Option 2 states quantity demanded increases as price decreases, which correctly reflects the Law of Demand.
• Options 3 and 4 discuss production costs and quantity supplied, which are not the direct consequences of the manufacturer choosing to lower prices to attract customers.

Answer:

• The quantity demanded will decrease as the product price decreases.
• The quantity demanded will increase as the product price decreases. (Correct answer)
• The quantity supplied will decrease as the production costs increase.
• The quantity supplied will increase as the production costs decrease.