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Chapter 4: Problem 2

Which of the following statements is true? a. An increase in demand, with no change in supply, will increase the equilibrium price and quantity. b. An increase in supply, with no change in demand, will decrease the equilibrium price and the equilibrium quantity. c. A decrease in supply, with no change in demand, will decrease the equilibrium price and increase the equilibrium quantity. d. All of the above are true.

Short Answer

Expert verified
a. An increase in demand, with no change in supply, will increase the equilibrium price and quantity.

Step by step solution

01

Statement a: An increase in demand, with no change in supply, will increase the equilibrium price and quantity.

When demand increases and supply remains the same, buyers are willing to pay a higher price for the good or service. This means the demand curve shifts to the right. As a result, the price and quantity at which demand equals supply (equilibrium point) also increases. So, statement a is true.
02

Statement b: An increase in supply, with no change in demand, will decrease the equilibrium price and the equilibrium quantity.

When the supply increases and demand remains the same, this means producers are willing to sell more goods or services at each price level. Consequently, the supply curve shifts to the right. The equilibrium point (where the quantity demanded equals quantity supplied) moves down the demand curve, resulting in a lower equilibrium price and a higher equilibrium quantity. So, statement b is false.
03

Statement c: A decrease in supply, with no change in demand, will decrease the equilibrium price and increase the equilibrium quantity.

When the supply decreases and demand remains the same, producers are willing to sell fewer goods or services at each price level. This means the supply curve shifts to the left. The equilibrium point then moves up the demand curve, resulting in a higher equilibrium price and a lower equilibrium quantity. So, statement c is false. As only statement a is proven to be true, the correct answer to the exercise is: a. An increase in demand, with no change in supply, will increase the equilibrium price and quantity.

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Most popular questions from this chapter

An increase in the wage paid to grape pickers will cause the a. demand curve for grapes to shift to the right, resulting in higher prices for grapes. b. demand curve for grapes to shift to the left, resulting in lower prices for grapes. c. supply curve for grapes to shift to the left, resulting in lower prices for grapes. d. supply curve for grapes to shift to the left, resulting in higher prices for grapes.

Suppose prices for new homes have risen, yet the number of homes sold has also risen. We can conclude that a. the demand for new homes has risen. b. the law of demand has been violated. c. new firms have entered the construction industry. d. construction firms must be facing higher costs.

Which of the following is least likely to result from rent controls set below the equilibrium price for rental housing? a. Shortages and black markets will result. b. The existing rental housing will deteriorate. c. The supply of rental housing will increase rapidly. d. People will demand more apartments than are available.

Consider the market for chicken. An increase in the price of beef will a. decrease the demand for chicken, resulting in a lower price and a smaller amount of chicken purchased in the market. b. decrease the supply of chicken, resulting in a higher price and a smaller amount of chicken purchased in the market. c. increase the demand for chicken, resulting in a higher price and a greater amount of chicken purchased in the market. d. increase the supply of chicken, resulting in a lower price and a greater amount of chicken purchased in the market.

Which of the following is the best example of a public good? a. Pencils b. Education c. Defense d. Trucks
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