Question

Falling oil prices would significantly lower the cost of production for many goods. Producers of plastic kayaks, for instance, would be able to produce larger quantities of their product given the decrease in input costs. Which of the following illustrates how consumers respond to the price incentive brought about by the subsequent increase in supply?

Falling prices lead consumers to purchase fewer kayaks.

Falling prices lead consumers to purchase more kayaks.

Rising prices lead consumers to purchase more kayaks.

Rising prices lead consumers to purchase fewer kayaks.

Answer 1

Falling prices lead consumers to purchase more kayaks.

Explanation: Lower production costs shift supply right, reducing the market price; according to the law of demand, a lower price increases the quantity demanded (movement along the demand curve).