The situation when the price will increase for sure, but the change in quantity will be ambiguous.
Explanation of Solution
An increase in demand will cause both the
A fall in supply will cause the equilibrium quantity to fall and the equilibrium price to increase.
So, when demand increases and supply decreases simultaneously, the equilibrium price will rise for sure, but the impact on equilibrium quantity will remain ambiguous.
The equilibrium quantity based on the magnitude of change in demand and supply may increase, decrease, and remain the same.
So, option “a” is correct.
The following table represents the changes in equilibrium quantity and equilibrium price when demand and supply change:
Factors | Equilibrium quantity | Equilibrium price |
Increase in demand | Increase | Increase |
Decrease in demand | Decrease | Decrease |
Increase in supply | Increase | Decrease |
Decrease in supply | Decrease | Increase |
Chapter 7 Solutions
Krugman's Economics For The Ap® Course
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