In the figure given below, D 1 and S 1 are the initial demand and supply curves for a commodity in the market.Figure 3.3 -Refer to Figure 3.3. If the change in the demand in this market occurred before the change in supply, then starting from the initial equilibrium: A)firms would experience a fall in profits and then a gradual increase in profits after the change in supply occurred. B)there would be an immediate shortage, lasting until the price reaches P₂. C)price would change from P₁ to P₂ after the change in demand and would change again from P₃ to P₄ after the change in supply. D)there would be a surplus until the price reaches P₄. E)there would be a surplus even after price reaches P₄.

Question

Quizplus · Accepted Answer

If the change in demand occurs before the change in supply, the demand curve shifts to the right causing an increase in both the equilibrium price and quantity. However, if the change in demand occurs before the change in supply, then there will be an immediate shortage as the initial equilibrium quantity is lower than the new quantity demanded. This shortage will last until the price increases to P₂, where the quantity demanded equals the quantity supplied. Therefore, option B is the correct choice.

In the Figure Given Below, D1 and S1 Are the Initial

In the Figure Given Below, D₁ and S₁ Are the Initial