Question

Keeping all other things constant, a shift in supply curve to the right will lead to

a. Decrease the price and quantity

b. Price will go up and quantity will go down

c. Price will go down and quantity will go up.

d. Increase the price and quantity

.

2. In a market if a product is sold below its equilibrium price, what could be interpreted.

a. None of the above.

b. The Price will go down due to this situation

c. There will be shortage in the market for this product

d. There will be surplus in the market for this product

Answer 1

In the diagram the green line is the initial supply curve and the red line is the initial demand curve. The initial equilibrium is at e1 where the price is p1 and quantity is q1.

After the right shift of the supply curve the new euilibrium is e2. Where the price is p2 and the quantity is q2.

So from diagram it is evident that Price falls from P1 to P2 and quantity goes up from Q1 to Q2.

First option is not correct because it talks about decrease of both.

Second option is not correct because it is talking about increase in price.

Third option is the correct option.

Fourth option is not correct because it is talking about increase of both .

2)

In the diagram P1 and Q1 is the equilibrium price and equilibrium quantity.

Price changes to P2 and then the amount the consumers demand is Qd and the quantity the producers wants to supply is Qs.

In the diagram it is clear that Qd is greater than Qs so there will be excess demand in the market.

Second option is not correct because it does not tells about any change in supply. But the supply will definitely change as price decreases.

The third option is correct because it holds good with the diagrammatic explanation.

Last option is just opposite of what we have derived.

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