Question

What do falling prices signal in a market economy?

Answer 1

The correct answer is 3: "Consumers have an incentive to purchase more goods".

The demand curve represents the quantity of a certain good or service that consumers are willing to purchase in the market at different price levels. The law of demand states that there is an inverse relationship between price and quantity demanded (ceteris paribus, hence, given that the rest remains equal).Therefore, when the price charged decreases, the amount that consumers are willing to buy of that product increases. Incentives are obvious, the demand of the product increases because consumers can use it to satisfy their needs at a cheaper price.

Answer 2

2 producers have an incentive to provide more goods