Question

If we plot the quantity of aluminum ore mined per year on the horizontal axis and the real annual price of aluminum ore on the vertical axis, we find that the path of price-quantity combinations generally indicates lower real prices and higher quantities over time. Which of the following statements is a plausible explanation for this observed outcome?

A) Aluminum supply shifted leftward faster than the aluminum demand curve shifted rightward.

B) Aluminum supply shifted rightward and aluminum demand remained constant.

C) Aluminum supply shifted rightward faster than the aluminum demand curve shifted rightward.

D) both A and B above

E) both B and C above

Answer 1

Answer- Correct option is 'B'

Aluminum supply shifted rightward and aluminum demand remained constant. According to the above observed outcome, Price has shown on Y axis and Quantity has shown on X axis. 'D' is demand curve and 'S' is supply curve. The path of price-quantity combinations generally indicates lower real prices and higher quantities over time, When price falls from P0 to P1 , the supply curve shifts rightward from S to S' and the demand curve move from point A to B. So, demand does not shift, it remains constant, because a shift in the demand curve is when a determinant of demand other than price changes. A movement occurs when a change in the quantity demanded is caused only by a change in price, and vice versa.