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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

Suppose the equilibrium price set by supply and demand is lower than the price ceiling set by the government. The eventual result will be a. a shortage. b. that quantity demanded is equal to quantity supplied. c. a surplus. d. a black market.

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An increase in consumers' incomes increases the demand for oranges. As a result of the adjustment to a new equilibrium, there is a (an) a. leftward shift of the supply curve. b. downward movement along the supply curve. c. rightward shift of the supply curve. d. upward movement along the supply curve.

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