If we observe a rise in the equilibrium price of product A, we know that either the demand for A has
A) increased or the supply of A decreased or both.
B) increased or the supply of A increased or both.
C) decreased or the supply of A increased or both.
D) decreased or the supply of A decreased or both.
E) none of the above.

Question

Quizplus · Accepted Answer

An increase in equilibrium price can be caused by an increase in demand, a decrease in supply, or both. This is illustrated by the basic supply and demand model, where an increase in demand or a decrease in supply will lead to an increase in the equilibrium price. Option B is incorrect as an increase in equilibrium price cannot be caused by an increase in supply, as this would lead to a decrease in price. Option C and D are incorrect as they suggest a decrease in equilibrium price, which is not what the question is asking. Option E is incorrect as there is a clear relationship between changes in equilibrium price and changes in demand and/or supply.

If We Observe a Rise in the Equilibrium Price of Product