What happens to the equilibrium price and quantity when there is an increase in demand?
Understand the Problem
The question is asking about the effects on equilibrium price and quantity in a market when there is an increase in demand. The answer choices provided indicate different potential outcomes for the equilibrium price and quantity based on economic principles.
Answer
Equilibrium price and quantity both increase.
An increase in demand leads to both an increase in equilibrium price and an increase in equilibrium quantity.
Answer for screen readers
An increase in demand leads to both an increase in equilibrium price and an increase in equilibrium quantity.
More Information
When the demand for a good or service increases, the demand curve shifts to the right, leading to a higher equilibrium price and quantity. This happens because the increased willingness to pay by consumers causes short-term shortages, pushing prices up until the market reaches a new equilibrium.
Tips
A common mistake is to assume supply remains unchanged or to overlook shifts in the supply curve that might simultaneously occur, which could alter the overall market outcome.
Sources
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