Florida Teacher Certification Examinations (FTCE) Social Science Practice Test

What economic principle describes the impact of increased demand on prices?

1. Supply and demand

2. Price elasticity

3. Opportunity cost

4. Comparative advantage

The correct answer is: Supply and demand

The principle that describes the impact of increased demand on prices is supply and demand. This fundamental concept in economics explains how the relationship between the quantity of a good or service that producers are willing to sell and the quantity that consumers are willing to buy determines the market price. When demand for a product increases while supply remains constant, there is upward pressure on prices. This is because consumers are willing to pay more to obtain the item they desire, leading sellers to raise prices accordingly until a new equilibrium is reached. The other options, while relevant to different aspects of economic theory, do not specifically address the relationship between demand and price changes. Price elasticity refers to the responsiveness of quantity demanded or supplied to changes in price, opportunity cost involves the benefits that are foregone by choosing one alternative over another, and comparative advantage relates to the ability of a party to produce a good or service at a lower opportunity cost than others.