Refer to the information provided in Figure 4.2 below to answer the questions that follow. Figure 4.2
-Refer to Figure 4.2.The market is initially in equilibrium at Point A and supply shifts from S1 to S2.Which of the following statements is TRUE?
A)Price will still serve as a rationing device causing quantity supplied to rise from 8 to 11 soft pretzels.
B)There is no need for price to serve as a rationing device in this case because the new equilibrium quantity is higher than the original equilibrium quantity.
C)Price will still serve as a rationing device causing quantity demanded to fall from 11 to 8 soft pretzels.
D)The market cannot move to a new equilibrium until there is also a change in supply.

Question

Refer to the information provided in Figure 4.2 below to answer the questions that follow.  Figure 4.2
-Refer to Figure 4.2.The market is initially in equilibrium at Point A and supply shifts from S1 to S2.Which of the following statements is TRUE?
A)Price will still serve as a rationing device causing quantity supplied to rise from 8 to 11 soft pretzels. 
B)There is no need for price to serve as a rationing device in this case because the new equilibrium quantity is higher than the original equilibrium quantity. 
C)Price will still serve as a rationing device causing quantity demanded to fall from 11 to 8 soft pretzels. 
D)The market cannot move to a new equilibrium until there is also a change in supply.

Quizplus · Accepted Answer

When supply shifts from S1 to S2, the new equilibrium point is at Point B. At this new equilibrium, the quantity demanded falls to 8 soft pretzels (from 11 at Point A) and the price rises to $2.00 (from $1.50 at Point A). This means that price is still serving as a rationing device, causing quantity demanded to fall. Therefore, option C is the correct answer. Option A is incorrect because the new equilibrium quantity demanded is lower than the original equilibrium quantity demanded, so quantity supplied cannot rise from 8 to 11. Option B is incorrect because price still serves as a rationing device at the new equilibrium, even though the quantity demanded is higher. Option D is incorrect because a change in supply has already occurred, causing the market to move to a new equilibrium.

Refer to the Information Provided in Figure 4