Question

1. Explain why businesses produce more of a product when the price rises.

2. Explain how inflation reduces the purchasing power of consumers.

Answer 1

1. Suppliers produce more product if the price of the product increases, that is , higher the price of the product , higher the quantity of product produced. This is because, it increases the revenue when selling higher quantity of product at higher prices. So when the price rises , large amount of product get produced.
2. Purchasing power of a consumer means the capacity of a customer to buy goods of certain quantity. When purchasing power of consumer increase means customer have high income. Increasing the price of goods can affect the whole economy. This process of increasing the price of goods and services is called inflation. It controls the customers from buying the goods and services, as it's price increases. Thus it reduces the purchasing power of consumers.