What will happen to market equilibrium when supply increases, assuming demand remains constant?Refer to the eBook

Question

BlackTom AI · Accepted Answer

Let’s break down what happens when supply increases while demand stays the same. 
Option a: 'Price will rise and quantity will increase.' This would imply a rightward shift in demand or a combination that raises price, but with only supply increasing, the price should move downward, not upward. So this is inconsistent with the scenario. 
Option b: 'Price will fall and quantity will decrease.' A fall in price is plausible with increased supply, but the accompanying decrease in quantity is not: when supply increases, the intersection point with the same demand curve moves to a higher quantity, not a lower one. Therefore this option mixes an expected price drop with an incorrect quantity change. 
Option c: 'Price will rise and quantity will decrease.' This describes a leftward shift in supply or a decreased supply scenario, which is the opposite of what’s given. It contradicts the condition that supply increases. Hence this option is incorrect. 
Option d: 'Price will fall and quantity will increase.' With a higher supply, the supply curve shifts rightward. To re-establish equilibrium with the same demand, the intersection moves to a higher quantity and a lower price. This aligns with the standard supply-demand framework: more supply lowers the price and raises the quantity traded. 
In summary, only the scenario described in option d matches the economic effect of an increased supply with demand constant, while the other options contradict the direction of change implied by a rightward shift in supply.

MUF0061 Economics Unit 1 - Semester 1, 2025 Extension Question

What will happen to market equilibrium when supply increases, assuming demand remains constant?Refer to the eBook

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MUF0061 Economics Unit 1 - Semester 1, 2025 Extension Question

What will happen to market equilibrium when supply increases, assuming demand remains constant?Refer to the eBook

View Explanation

Log in for full answers

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