Chapter 7, Problem 5MCQ

To determine

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 equilibrium quantity and equilibrium price to increase.

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.

Economics Concept Introduction

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