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MICROECONOMICS:If a producer expects that there will be a decrease in the price of bread next month:

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Posted by Studentbox user
Would there be an increase in demand today, decrease in supply today, increase in selling price today, or increase in supply today?

Comments

  • admin
    Studentbox User
    Hi connormoncaster,

    From the demand-side, if consumers are expecting prices to fall  in the future, they will decrease demand today. This is because if they wait until prices fall, they will be able to buy the same amount of bread for a lower price / more bread for the same price.

    From the supply-side, if there is a decrease in the price of bread next month, this means that producers will receive less revenue per unit of bread. Therefore, they will increase their supply today to take advantage of the present prices (which, according to expectations, are relatively higher than future prices).

    Hope that helps!

    Danielle
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