Question:
If both demand and supply of tea increase, what will happen to the equilibrium price and quantity in the tea market?
(1) Price Increases / Quantity Increases
(2) Price Decreases / Quantity Decreases
(3) Price Decreases / Quantity Increases
(4) Price Increases / Quantity Indeterminate
(5) Price Indeterminate / Quantity Increases
Correct Answer:
(5)
Answer Explanation:
Both an increase in demand and an increase in supply push the equilibrium quantity higher, so Quantity definitely increases. However, higher demand pushes the price up, while higher supply pushes the price down. Without knowing the exact size of the shifts, the final Price is indeterminate.
Topic: Market Equilibrium Year: 2018
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