With respect to the market clearing price and the equilibrium quantity for good X, an increase in the demand for and a decrease in supply of the good definitely will
A) increase the market clearing price and the equilibrium quantity of good X.
B) decrease the market clearing price and the equilibrium quantity of good X.
C) increase the market clearing price of good X but lower the equilibrium quantity of X.
D) increase the market clearing price of good X but have an uncertain impact on the equilibrium quantity of X.

Question

Quizplus · Accepted Answer

An increase in demand tends to raise both the market clearing price and the equilibrium quantity, while a decrease in supply tends to raise the price but lower the equilibrium quantity. Therefore, the price will definitely increase, but the effect on the equilibrium quantity is uncertain because the impacts of the changes in demand and supply on quantity work in opposite directions.

With Respect to the Market Clearing Price and the Equilibrium