Figure: Supply-Driven Price Change Refer to the figure. When the supply curve shifts from S₀ to S₁, the equilibrium price rises to: A) $12 and the equilibrium quantity falls to 70. B) $10 and the equilibrium quantity falls to 100. C) $12 and the equilibrium quantity falls to 40. D) $10 and the equilibrium quantity falls to 70.

Question

Quizplus · Accepted Answer

When the supply curve shifts to the right, the equilibrium quantity increases and the equilibrium price decreases. However, in this case, the demand curve is not shifting, and thus the increase in supply shifts the equilibrium point along the demand curve. As a result, the equilibrium price increases and the equilibrium quantity decreases. In this case, the new equilibrium point is at a price of $12 and a quantity of 70.

Figure: Supply-Driven Price Change Refer to the Figure