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Question

When supply of a product increases, but the demand for it remains constant, which of the following is likely to happen? 
  1. Demand and supply have nothing to do with price.
  2. Price will increase.
  3. Price will drop.
  4. Price will remain constant.


Solution

The correct option is C Price will drop.
The Laissez-Faire principle does not allow the government to interfere in the affairs of private businesses. It allows the market to change naturally, according to the laws of supply and demand. Thus, in such a state, when the supply for a product were to increase, its price will automatically decrease, according to the law of the market. 

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