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Demand, Supply and How Markets Work: Question 10

Syllabus 2.1, 2.2, 2.3

Multiple choice 1 mark

A flower stall sells fresh bouquets. The price of a bouquet falls from $25 to $15, while the cost of the flowers, the wages paid to stall workers, and every other influence on supply stay exactly the same. As a result, the stall grows and offers fewer bouquets for sale at the new, lower price.

What is the correct economic term for this change in the quantity of bouquets supplied?

Choose an answer to check it, then compare with the worked solution below.
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Worked solution

Step 1: Identify what has actually changed

Only the price of a bouquet itself has changed, from $25 to $15. The stem tells us that the cost of flowers, wages and every other influence on supply are unchanged, so nothing has shifted the supply curve. The stall is simply reacting to the new price.

Step 2: Apply the vocabulary for movements along the supply curve

When the price of a good changes and every other influence on supply stays the same, sellers move to a different point on the same supply curve:

  • A fall in price causes a contraction in supply. Quantity supplied falls.
  • A rise in price causes an extension in supply. Quantity supplied rises.

Here the price of a bouquet falls and the quantity supplied falls, so this is a contraction in supply.

Step 3: Rule out the other options

  • “An extension in supply” (option A) is the opposite movement to what is described: it happens when price rises and quantity supplied rises.
  • “A decrease in supply” (option B) describes a leftward shift of the whole supply curve, which is caused by a non-price determinant such as a rise in production costs, not by the good’s own price falling.
  • “An increase in demand” (option D) describes buyers, not sellers, and the stem only describes the stall offering fewer bouquets for sale, not customers buying more.

Final answer

Falling price of a bouquet, with nothing else changing, moves the stall along the existing supply curve to a point of lower quantity supplied. This is a contraction in supply, option C.