Equilibrium Price — Practice Quiz

Both price and quantity rise

Step 1: An increase in demand means the demand curve shifts to the right (from DD to D1D1). Step 2: At the original equilibrium price, demand now exceeds supply, creating excess demand. Step 3: Excess demand pushes the price upward. Step 4: As price rises, suppliers are willing to supply more (extension of supply along the same supply curve). Step 5: A new equilibrium is reached at a higher price AND higher quantity. Therefore, both equilibrium price and equilibrium quantity increase. Option A is wrong — quantity doesn't fall when demand increases. Option B is the opposite effect (seen when su

Fall and equilibrium quantity will rise

Step 1: An increase in supply shifts the supply curve rightward (from SS to S1S1). Step 2: At the original equilibrium price, supply now exceeds demand — this creates excess supply. Step 3: Excess supply puts downward pressure on price, so price falls. Step 4: As price falls, more consumers are willing to buy (extension of demand). Step 5: A new equilibrium is reached at a lower price but a higher quantity. This is the key result: increase in supply → price falls, quantity rises. Option A and D describe price rising, which is incorrect here. Option B is partly correct about price but wrong abo

Below the equilibrium price to protect poor consumers

Step 1: The government intervenes in markets when the free market price is considered too high for poor consumers. Step 2: Price ceiling (maximum price policy) means fixing a maximum price that sellers cannot exceed. Step 3: This maximum price is set BELOW the equilibrium price — otherwise it would have no effect on the market. Step 4: The objective is to make essential goods like wheat, rice, sugar affordable for poor people. Step 5: However, this creates excess demand (shortage) in the market as a side effect. Setting price above equilibrium (Option A and C) would be irrelevant as the market

Excess demand (shortage) of the commodity

Step 1: Price ceiling is fixed below the equilibrium price. Step 2: At this lower price, consumers want to buy MORE of the commodity (because it's cheaper) — so quantity demanded increases. Step 3: At the same lower price, producers are willing to supply LESS (because they earn less profit) — so quantity supplied decreases. Step 4: Since Qd > Qs, there is a shortage or excess demand in the market. Step 5: This shortage may lead to black marketing, where goods are sold illegally at prices higher than the ceiling. Option A (excess supply) is the effect of price floor, not price ceiling. Option B