Home › CA Foundation › Business Economics › Determination of Prices › When demand increases and supply decreases at th…
When demand increases and supply decreases at the same time, the certain outcome for the market is that:
AThe equilibrium price rises while the quantity is uncertain
BThe equilibrium quantity rises while the price is uncertain
CBoth the equilibrium price and quantity must rise
DBoth the equilibrium price and quantity must fall
Answer & Solution
Correct answer: A. The equilibrium price rises while the quantity is uncertain
1. A rightward demand shift pushes price up; a leftward supply shift also pushes price up.
2. Both forces act in the same direction on price, so the price rises for certain.
3. The two shifts pull quantity in opposite directions, so the quantity outcome depends on relative sizes.
4. Price up but quantity uncertain means option A is correct.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 4 Unit II "Determination of Prices", p.7_
Related questions
When a binding price ceiling is fixed by the government below the equilibrium price of a gHeavy rains destroy a large part of the rice crop while demand for rice is unchanged. The X is a normal good. Consumers' income rises while, at the same time, the price of a factorWhen demand decreases and supply increases simultaneously, which statement is correct?If both demand and supply increase by exactly the same amount, the new equilibrium will shWhen demand and supply both increase but supply rises in a greater proportion than demand,With demand held constant, a decrease in supply caused by obsolete technology will lead toHolding supply unchanged, an increase in the demand for a normal good will cause the equil