Which of the following is the best explanation of why the price adjusts following an increase in supply?

Choose 1 answer:
(A) Price adjusts automatically when supply changes
(B) At the initial price, there will be a shortage after supply increases. Price must fall until the quantity demanded and quantity supplied are equal again.
(C) At the initial price, there will be a surplus after supply increases. Price must fall until the quantity demanded and quantity supplied are equal again.
(D) At the initial price, there will be a surplus after supply increases. Price must rise until the quantity demanded and quantity supplied are equal again.
(E) At the initial price, there will be a shortage after supply increases. Price must rise until the quantity demanded and quantity supplied are equal again.

Question

Which of the following is the best explanation of why the price adjusts following an increase in supply?

Choose 1 answer:
(A) Price adjusts automatically when supply changes
(B) At the initial price, there will be a shortage after supply increases. Price must fall until the quantity demanded and quantity supplied are equal again.
(C) At the initial price, there will be a surplus after supply increases. Price must fall until the quantity demanded and quantity supplied are equal again.
(D) At the initial price, there will be a surplus after supply increases. Price must rise until the quantity demanded and quantity supplied are equal again.
(E) At the initial price, there will be a shortage after supply increases. Price must rise until the quantity demanded and quantity supplied are equal again.

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ To understand the impact of an increase in supply on price, we must refer to the law of supply and demand. ‖ ‖ step 2 ⋮ An increase in supply, with demand remaining constant, creates a surplus at the initial price level. ‖ ‖ step 3 ⋮ A surplus occurs when the quantity supplied exceeds the quantity demanded. ‖ ‖ step 4 ⋮ To eliminate the surplus and reach a new equilibrium, the price must adjust. ‖ ‖ step 5 ⋮ The price will fall to encourage an increase in quantity demanded and a decrease in quantity supplied until equilibrium is restored. ‖ ‖ ∻Answer∻ ***C*** ‖ ∻Key Concept∻ ⚹Surplus and Price Adjustment⚹ ∻Explanation∻ ⚹When supply increases leading to a surplus, the price falls to restore equilibrium between quantity demanded and quantity supplied.⚹◊What is the probability that a student randomly guessing the correct answer to the economics multiple-choice question?⍭ Generate me a similar question◊

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