An increase in demand will lead to

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BlackTom AI · Accepted Answer

Question context: The prompt asks about what happens when there is an increase in demand. This scenario is typically analyzed using the supply-and-demand framework, where demand shifts to the right.
Option a: 'a shortage at the original equilibrium price. This will cause price to rise to a new equilibrium; and there will be a smaller quantity traded in the market.' A shortage at the original equilibrium price would occur if quantity demanded exceeded quantity supplied at that price. However, when demand increases, the shortage moves toward a higher equilibrium quantity rather than remaining as a smaller traded quantity; the initial shortage would be resolved by a higher price, but the quantity traded would increase, not decrease. So this option incorrectly states there will be a smaller quantity traded.
Option b: 'a shortage at the original equilibrium price. This will cause price to fall to a new equilibrium; and there will be a smaller quantity traded in the market.' This depicts a shortage but suggests the price would fall to a new equilibrium. In standard models, a shortage tends to push prices up, not down, so this reverses the direction of the adjustment and is inconsistent with how shortages resolve. Also, a larger shift in demand typically raises traded quantity, not reduces it, making the smaller quantity claim dubious.
Option c: 'a shortage at the original equilibrium price. This will cause price to rise to a new equilibrium; and there will be a larger quantity traded in the market.' Here, the increase in demand creates excess demand (a shortage) at the original price. The market responds by raising the price to clear the excess demand, moving to a new equilibrium. At the new higher price, more quantity is supplied and more is demanded, so the traded quantity increases. This aligns with standard supply-and-demand adjustment dynamics.
Option d: 'a surplus at the original equilibrium price. This will cause price to rise to a new equilibrium; and there will be a smaller quantity traded in the market.' A surplus occurs when quantity supplied exceeds quantity demanded at the original price, typically leading to a price decrease, not a rise, as the market moves to equilibrium. Also, a rise in price would not generally occur from a surplus; instead, prices tend to fall to restore balance, and traded quantity would not necessarily be smaller in the described direction. Therefore, this option misstates both the initial condition and the subsequent adjustment.
Summary: The scenario of an increase in demand creates excess demand (shortage) at the original price, prompting a price increase to reach a new equilibrium where quantity traded is higher. The option that matches this sequence is the one describing a shortage at the original price, a rise to a new equilibrium, and a larger quantity traded.

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MUF0061 Economics Unit 1 - Semester 2, 2025 Revision Quiz - Market Equilibrium (12 - 15 minutes)

An increase in demand will lead to

View Explanation

Log in for full answers

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