Set 5: Central Ideas (Intermediate)
Explanation
PASSAGE
The following text discusses the concept of 'Supply and Demand'. The law of supply and demand describes how changes in the price of a resource affect its availability and the desire for it. Generally, if supply is low and demand is high, the price rises. Conversely, if supply exceeds demand, the price falls. This equilibrium mechanism allocates resources efficiently in a market economy, signaling to producers what to make and to consumers what to buy based on scarcity.
What happens to the price of a resource when supply exceeds demand?
Detailed Explanation
Choice C is correct. The text states: 'if supply exceeds demand, the price falls.'
Key Evidence:
• "supply exceeds demand"
• "price falls"
Why others are wrong: A (Opposite (happens when demand > supply)), B (Inaccurate), D (Inaccurate).