Difficulty: Easy

Average Score: 100%

When consumer demand and firm supply both rise, equilibrium price ...

Rationale

When consumer demand and firm supply both rise, equilibrium price is indeterminate; quantity increases.

When both consumer demand and firm supply increase, the quantity sold in the market will definitely rise due to increased availability and willingness to purchase. However, the effect on equilibrium price is uncertain as it depends on the relative magnitudes of the shifts in demand and supply.

A (Price up; quantity down) YOUR ANSWER

This choice suggests that an increase in both demand and supply would lead to a higher price and decreased quantity, which contradicts basic economic principles. When demand increases, prices generally rise, but an increase in supply typically lowers prices. This scenario cannot logically result in a higher price and lower quantity.

B (Price up; quantity indeterminate) YOUR ANSWER

While it is possible for the price to increase if demand outstrips supply, this choice does not account for the simultaneous increase in supply. The increase in supply could offset the price increase from demand, making the price indeterminate. Therefore, it does not accurately reflect the outcome of both factors increasing.

C (Price indeterminate; quantity up) CORRECT

This is the correct choice because while the quantity will certainly increase due to higher demand and supply, the effect on price remains uncertain. If demand increases more than supply, prices could rise; conversely, if supply increases more than demand, prices could fall. Thus, equilibrium price remains indeterminate.

D (Price indeterminate; quantity down) YOUR ANSWER

This option incorrectly states that quantity decreases. An increase in both demand and supply would lead to a rise in quantity traded in the market. Therefore, this choice is not consistent with the basic principles of supply and demand.

Conclusion

In summary, when both consumer demand and firm supply rise, the quantity in the market will undoubtedly increase due to greater availability and willingness to purchase. However, the equilibrium price is indeterminate, as it depends on the relative strength of the shifts in demand and supply. This analysis reinforces the complexities of market dynamics and highlights the importance of understanding the interplay between demand and supply factors.

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