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Question: The demand for fashion goods is not influenced by:
A) Price
B) Allocative ineffiency among producers
C) The distribution of income among households
D)Expectation of future price changesAs explained in the answer section of the revision kit, option B [Allocative ineffecncy among producers ] is a supply-side factor, may I know how the factor of allocative inefficency among producers will casue a change in supply.
Thanks and looking forward to your reply!
Allocative inefficiency is a matter for suppliers, as you say. The question is asking about demand and that is a matter for buyers. Therefore, allocative inefficiency will not affect demand as customers are not aware of suppliers’ problems. Obviously, if he inefficiencies caused higher prices to be charged, the demand would change, but that is taking the question one stage further.
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