9. Suppose that demand for a good increases and, at the same time, supply of the

Question

9. Suppose that demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market for the good?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.

b. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.

d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

Explanation / Answer

With an increased demand & decreased supply, equilibrium price will definitely increase.

But how quantity will change, cannot be exactly determined - we cannot know if the new equilibrium quantity will be lower or higher than the original quantity.

So, correct option (b)

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