CA Foundation · Business Economics · Theory of Demand and Supply
In a market, demand increases and supply decreases at the same time. Which outcome is certain?
Equilibrium price definitely rises, because both an increase in demand and a decrease in supply push price upward. The change in equilibrium quantity is uncertain, as it depends on which shift is larger, so no firm conclusion about quantity can be drawn.
- AEquilibrium price risesCorrect
- BEquilibrium quantity rises
- CEquilibrium price falls
- DEquilibrium quantity falls
Explanation
A rightward demand shift raises price, and a leftward supply shift also raises price, so price definitely rises. The effect on quantity depends on the relative sizes of the shifts, since demand raises it while supply lowers it. Hence quantity changes are indeterminate.
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