Suppose the Market for a Good Is Initially in Equilibrium

question 190

Multiple Choice

Suppose the market for a good is initially in equilibrium. Which of the following is most likely to happen if supply increases by a smaller amount than the increase in demand?

• A) The equilibrium price will fall, and the equilibrium quantity will rise.
• B) The equilibrium price will rise, and the equilibrium quantity will fall.
• C) Both the equilibrium price and equilibrium quantity will rise.
• D) The equilibrium price will rise but the change in the equilibrium quantity is indeterminate.
• E) Both the equilibrium price and equilibrium quantity will fall.

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Definitions:

Average Fixed Cost

The fixed expenses of a firm (costs that do not change with output level) divided by the quantity of output produced.

Shutdown Decision

A short-run economic decision made by firms about whether to continue operations or shut down temporarily based on costs and revenue.

Marginal Cost Curve

A graphical representation showing the change in the total cost of producing one additional unit of a product or service.

Average Variable Cost

The total variable costs divided by the quantity of output produced, representing the variable cost of producing each unit of output.