In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S)
Of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X.
Consumer expectations that the price of X will rise sharply in the future will

Question

Quizplus · Accepted Answer

If consumers expect the price of X to rise sharply in the future, they are likely to buy more of X now to avoid paying a higher price later. This will increase the demand (D) for X, leading to an increase in both the equilibrium price (P) and quantity (Q) of X. The increase in demand will not affect the supply (S) of X, therefore choice A can be eliminated. The decrease in supply (S) suggested in choice C is incorrect. The decrease in price (P) suggested in choice D is also incorrect as consumer expectations of future price increases will increase the equilibrium price. Thus, the best choice is B.

In the Following Question You Are Asked to Determine, Other