Which of the following is the best explanation of why the price adjusts following an increase in supply?

Choose 1 answer:
A) At the initial price, there will be a shortage after supply increases. Price must fall until the quantity demanded and quantity supplied are equal again.
(B) At the initial price, there will be a surplus after supply increases. Price must rise until the quantity demanded and quantity supplied are equal again.
(C) At the initial price, there will be a surplus after supply increases. Price must fall until the quantity demanded and quantity supplied are equal again.
(D) At the initial price, there will be a shortage after supply increases. Price must rise until the quantity demanded and quantity supplied are equal again.
(E) Price adjusts automatically when supply changes

Question

Which of the following is the best explanation of why the price adjusts following an increase in supply?

Choose 1 answer:
A) At the initial price, there will be a shortage after supply increases. Price must fall until the quantity demanded and quantity supplied are equal again.
(B) At the initial price, there will be a surplus after supply increases. Price must rise until the quantity demanded and quantity supplied are equal again.
(C) At the initial price, there will be a surplus after supply increases. Price must fall until the quantity demanded and quantity supplied are equal again.
(D) At the initial price, there will be a shortage after supply increases. Price must rise until the quantity demanded and quantity supplied are equal again.
(E) Price adjusts automatically when supply changes

Accepted Answer

∻Solution∻ ‖ a ⋮ Initial Price and Surplus: At the initial price, there will be a surplus after supply increases. This is because the quantity supplied exceeds the quantity demanded at the original price. ‖ ‖ b ⋮ Price Adjustment: Price must fall until the quantity demanded and quantity supplied are equal again. This adjustment occurs because the surplus puts downward pressure on the price. ‖ ∻Answer∻ ⚹ (C) At the initial price, there will be a surplus after supply increases. Price must fall until the quantity demanded and quantity supplied are equal again. ⚹ ∻Key Concept∻ ⚹ Surplus and Price Adjustment ⚹ ∻Explanation∻ ⚹ When supply increases, the initial price leads to a surplus because the quantity supplied exceeds the quantity demanded. To eliminate the surplus, the price must fall until the market reaches a new equilibrium where quantity demanded equals quantity supplied. ⚹◊What impact does an increase in supply have on the equilibrium price in a market according to the law of supply and demand?⍭ Generate me a similar question◊

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