Question

What situation would cause an increase in equilibrium quantity and a decrease in market equilibrium? a....

What situation would cause an increase in equilibrium quantity and a decrease in market equilibrium?

a. an increase in demand

b. an increase in supply

c. a decrease in demand

d. a decrease in supply

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Homework Answers

Answer #1

ANSWER : b. an increase in supply

Market is at equilibrium when quantity demanded is equal to the quantity supplied, it occurs when supply curve and demand curve intersects.

Market is at equilibrium where supply curve, S and demand curve D intersects at equilibrium point E. The equilibrium price level is P and equilibrium quantity level is Q.

When supply increases in the market, it leads to a rightward shift in the supply curve from S to S'. As a result the equilibrium output level increases from Q to Q' and price level decreases from P to P'. However, as we can see the market equilibrium decreases from E to E'.

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