Question

Which of the following situation does not lead to an increase in equilibrium price?

• A. An increase in demand, without a change in supply.
• B. A decrease in supply accompanied by an increase in demand
• C. A decrease in supply without a change in demand
• D. An increase in supply accompanied by a decrease in demand.

Answer 1

The correct option is D An increase in supply accompanied by a decrease in demand.

A situation where there is no increase in price is when there is decrease in demand increase in supply. When there is decrease in demand and increase in supply the demand curve moves to the left from DD to D1D1 and the supply curve shifts to the right from SS to S1S1. So, at the new equilibrium point the quantity is not changed but the price will decrease from P to P1 because supply is increased and demand is reduced.