Suppose the demand for cars rises and prices are flexible. What will firms that produce cars experience?

Question

Multiple choice question.

Rising prices, an increase in production, and an increase in employment

Rising prices, a decrease in production, and an increase in employment

Declining prices, an increase in production, and a decrease in employment

Declining prices, an increase in production, and an increase in employment

Answer 1

The correct answer is:

Rising prices, an increase in production, and an increase in employment.

When demand for cars rises and prices are flexible, firms will respond to the higher demand by raising prices, increasing production to meet the demand, and likely hiring more employees to help with the increased production.