explain answer: (Note: read carefully.) After a large increase in demand and a s

Question

explain answer: (Note: read carefully.) After a large increase in demand and a small increase in supply, equilibrium price

Question 4 options:

will decrease and equilibrium quantity will decrease

will increase and equilibrium quantity will increase

will increase and equilibrium quantity will decrease

will decrease and equilibrium quantity will increase

A)

will decrease and equilibrium quantity will decrease

B)

will increase and equilibrium quantity will increase

C)

will increase and equilibrium quantity will decrease

D)

will decrease and equilibrium quantity will increase

Explanation / Answer

Ans:

will increase and equilibrium quantity will increase

If both demand and supply increases, consumers are willing to buy more and firms to willing to supply more hence output will increase. But, since consumers places a higher value for each unit, but producers are willing to supply each unit at a lower price, the effect on price will depend on the relative size of the two changes.

B)

will increase and equilibrium quantity will increase

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