Question on: JAMB Economics - 2002
The effect of an increase in demand for a commodity accompanied by a decrease in supply will be to?
A
raise the price of the commodity and affect the quantity in an indeterminate way
B
decrease the equilibrium quantity and affect the price in an intermediate way
C
raise its price as well as the equilibrium quantity
D
lower it price while affecting the equilibrium quantity in an interminate way
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Correct Option: C
Here's the explanation:
- Increase in Demand: When demand increases, the demand curve shifts to the right. This puts upward pressure on the price.
- Decrease in Supply: When supply decreases, the supply curve shifts to the left. This also puts upward pressure on the price.
- Combined Effect on Price: Both the increase in demand and the decrease in supply contribute to a higher equilibrium price.
- Combined Effect on Quantity: The effect on quantity is indeterminate. The increase in demand tends to increase quantity, while the decrease in supply tends to decrease quantity. The net effect on quantity depends on the magnitude of the shifts in the curves. If the demand shift is greater than the supply shift, the quantity will increase. If the supply shift is greater than the demand shift, the
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