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CA Foundation · Business Economics · Theory of Demand and Supply

In a market, the supply of a commodity increases while demand stays unchanged. Which outcome is expected?

Equilibrium price falls and equilibrium quantity rises. The rightward shift of the supply curve creates excess supply at the old price, which pushes the price down, and the lower price encourages buyers to purchase a larger quantity along the unchanged demand curve.

  1. AEquilibrium price rises and quantity rises
  2. BEquilibrium price falls and quantity risesCorrect
  3. CEquilibrium price falls and quantity falls
  4. DEquilibrium price rises and quantity falls

Explanation

An increase in supply shifts the supply curve to the right. With the demand curve unchanged, the new intersection lies at a lower price and a larger quantity. Consumers move down along the demand curve, buying more at the lower price.

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