When supply increases in a competitive market

Question

Quizplus · Accepted Answer

An increase in supply means there is more of a product on the market, which puts downward pressure on the price to maintain equilibrium. As a result, the equilibrium price falls. Choice B (demand falls) is incorrect because an increase in supply does not necessarily lead to a corresponding decrease in demand. Choice C (shortages emerge) is incorrect because an increase in supply should lead to a reduction in shortages. Choice D (actual price rises) is incorrect because an increase in supply would typically lead to a decrease in price. Choice E (quantities sold decrease) is incorrect because an increase in supply would usually lead to an increase in quantities sold, as long as demand remained constant or increased.

When Supply Increases in a Competitive Market