Certified Supply Chain Professional (CSCP) Practice Exam

Which of the following best exemplifies law of supply and demand?

1. Increasing price leads to less supply

2. Price cut to sell excess, and scarce items costing more

3. Fixed pricing leading to stable demand

4. Supply increase decreases overall prices

The correct answer is: Price cut to sell excess, and scarce items costing more

The concept of supply and demand is foundational in understanding how prices are determined in a market economy. The best example provided in the options relates to the dynamic between pricing and availability of goods. When a price cut is implemented to sell excess inventory, it reflects how sellers respond to lower demand or an oversupply of products. By reducing prices, sellers aim to stimulate demand, which can help clear out excess stock. Conversely, for scarce items that are in high demand, increasing their prices is a natural response to limited supply. This situation illustrates the law of supply and demand effectively, where a decrease in price encourages consumption and excess supply, while an increase in price reflects high demand due to limited availability. In contrast, the other choices do not encapsulate the law of supply and demand as clearly. Options discussing fixed pricing don’t demonstrate the dynamic equilibrium that occurs between supply and demand. Also, examples focusing solely on supply increases or decreases in price relative to supply can miss the broader interplay of demand factors. Thus, the option that showcases the variations in prices as a direct response to changes in supply and demand conditions closely aligns with the fundamental principles of the law of supply and demand.