When a retailer decides to lower the price of an item significantly, it has a considerable impact on both supply and demand. In this case, the price of handmade glass ornaments has been reduced to [tex]$10.
Let's analyze the impact of this price reduction:
1. Demand-Supply Dynamics: Demand and supply are fundamental concepts in economics. Generally, if the price of a good decreases, the quantity demanded by consumers increases because consumers are willing to buy more at lower prices. Conversely, the quantity supplied by producers usually decreases because producers are less willing to produce and sell at lower prices.
2. Equilibrium Price: The equilibrium price is the price at which the quantity demanded by consumers equals the quantity supplied by producers. At this price, the market is at balance, and there is neither a surplus nor a shortage of the product.
3. Price Reduction to $[/tex]10:
- The price of [tex]$10 is described as lower than the equilibrium price.
- When the price is set below the equilibrium price, the following occurs:
- Demand Increases: More consumers are attracted to purchase the ornaments because the price is cheaper.
- Supply Decreases: Producers might produce less because the profit margin is lower, or they might not be able to supply as much at the lower price.
4. Resulting Condition:
- The increase in demand coupled with a decrease in supply leads to a situation where the quantity demanded exceeds the quantity supplied.
- This condition is known as a shortage. A shortage occurs because there are more consumers who want to buy the product at the lower price than there are products available.
Given these points, we conclude that the correct consequence of reducing the price of the handmade glass ornaments to $[/tex]10 is a shortage, as the price is lower than the equilibrium price, leading to more demand than supply.
Therefore, the correct answer is:
- A shortage, because the price would be lower than the equilibrium price.
