-Let supply remain constant at S; an increase in the price of a substitute good causes consumers to be willing and able to buy 150 more units of the good at each price in the list than they were when demand was D. Which of the following statements is (are) true?

Question

Quizplus · Accepted Answer

Since the increase in demand caused by the price increase of a substitute good is constant at every price level, the demand curve shifts to the right by 150 units. This causes a temporary shortage at the original equilibrium price, which leads to an increase in price until a new equilibrium is reached where quantity demanded equals quantity supplied. The new equilibrium occurs at a higher price level, and a higher quantity level, as shown in the figure. Therefore, statement A is false and statement B is true. The new equilibrium price is higher than the original equilibrium price, and the new equilibrium quantity is higher than the original equilibrium quantity. Thus, statement C is false and statement D is true. Therefore, both statement A and D are true, making choice E the correct answer.

-Let Supply Remain Constant at S; an Increase in the Price