Which scenario best reflects the relationship between production and demand in a recession?

• A. Firms reduce production because consumer demand decreases.
• B. Production and consumer demand both remain unchanged.
• C. Consumer demand rises, leading firms to expand production.
• D. Firms increase production to stimulate higher consumer demand.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the economic context of a recession, which is typically characterized by a decline in overall economic activity, including lower consumer spending and demand.
2. Step 2: Recognize the relationship between consumer demand and production: firms generally adjust their production levels based on the demand for their goods and services.
3. Step 3: Analyze the options by considering how firms respond to changes in consumer demand during a recession. Since demand usually decreases, firms are likely to reduce production to avoid excess supply.
4. Step 4: Eliminate options that contradict typical recession behavior, such as production and demand remaining unchanged, demand rising, or firms increasing production to stimulate demand, as these are less consistent with recession dynamics.
5. Step 5: Conclude that the scenario where firms reduce production because consumer demand decreases best reflects the relationship between production and demand in a recession.