ACCA Applied Knowledge · Business and Technology · Microeconomic factors
In a competitive market for wheat, a poor harvest reduces supply while demand is unchanged. Assuming the market is free from intervention, what is the most likely effect?
Equilibrium price rises and quantity traded falls. A poor harvest shifts the supply curve left, creating a shortage at the old price. Competition among buyers pushes the price up, and the higher price reduces the quantity demanded, so the new equilibrium has a higher price and a lower quantity.
- AEquilibrium price rises and quantity traded fallsCorrect
- BEquilibrium price falls and quantity traded rises
- CEquilibrium price and quantity traded both rise
- DEquilibrium price stays the same and quantity traded falls
Explanation
A leftward shift of the supply curve with demand unchanged creates a shortage at the old price. Price rises, which reduces quantity demanded along the demand curve, and the new equilibrium quantity is lower. Option B describes an increase in supply, not a decrease.
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