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

Choose 1 answer:
(A) Price adjusts automatically when supply changes
(B) 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.
(c) 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.

D 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.
(E) 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.

Question

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

Choose 1 answer:
(A) Price adjusts automatically when supply changes
(B) 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.
(c) 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.

D 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.
(E) 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.

Accepted Answer

∻Solution∻ ‖ a ⋮ Initial Price and Supply Increase: When the supply of a good increases, the initial price is no longer at equilibrium. This is because the quantity supplied exceeds the quantity demanded at the initial price. ‖‖ b ⋮ Surplus Creation: At the initial price, the increase in supply creates a surplus in the market. This surplus means that there are more goods available than consumers are willing to buy at that price. ‖‖ c ⋮ Price Adjustment: To eliminate the surplus, the price must fall. As the price decreases, the quantity demanded will increase, and the quantity supplied will decrease until a new equilibrium is reached where quantity demanded equals quantity supplied. ‖ ∻Answer∻ ⚹ E. 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, a surplus is created at the initial price. To reach a new equilibrium, the price must fall so that the quantity demanded increases and the quantity supplied decreases until they are equal. ⚹◊What is the relationship between the price and supply in Microeconomics?⍭ Generate me a similar question◊

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