Microeconomics: Market Equilibrium · Class 11 · CBSE · Commerce Economics
Suppose consumer preferences increase the demand for a good, while improved technology increases its supply. Assuming the changes are significant, wh…
Practice question from Microeconomics: Market Equilibrium (Class 11 · CBSE · Commerce Economics), with the correct answer and a step-by-step solution.
hard · MCQ · Q-8F7649
Suppose consumer preferences increase the demand for a good, while improved technology increases its supply. Assuming the changes are significant, what can be concluded about the new equilibrium?
- A.Equilibrium quantity definitely increases, but the change in equilibrium price is uncertainCorrect answer
- B.Equilibrium price definitely increases, but the change in equilibrium quantity is uncertain
- C.Both equilibrium price and quantity definitely increase
- D.Both equilibrium price and quantity definitely decrease
Solution
An increase in demand raises equilibrium quantity and tends to raise price, while an increase in supply raises equilibrium quantity and tends to lower price. Therefore, equilibrium quantity definitely rises, but the final effect on price depends on the relative magnitudes of the two shifts.
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