Question

1. A decrease in the supply of a good will

1. All of these answers are correct
2. Reallocate some of the good from lower valued uses to higher valued uses
3. Cause existing users to conserve their use of the good to higher valued uses (INCORRECT)
4. None of these answers are correct
5. Increase the use of alternative similar goods

Answer 1

a. No, not all the options are correct.

b. A decrease in the supply of a good would not result in the reallocation of some goods from lower valued uses to higher values uses. The reallocation rather depends on the income of the consumer.

c. No, a decrease in the supply of a good would not cause the existing users to conserve their use of the good to higher valued uses as higher valued goods fall in the category of the luxury goods, whose demand increases when the income or earning of a consumer increases. It depends on the consumer’s power to purchase and not on the decrease in the supply of other goods.

d. This option is inapplicable as option e is the right answer.

e. The increase in the use of similar alternate goods can be possible when the supply of a good decreases. Low supply of a good would lead the consumers to switch to the other similar rather substitute of the good as they can utilize the substitute in the place of the other good. Therefore, this is the correct answer.