Multiple choice

The requirement is to describe market conditions in a competitive market when both demand and supply increase. In a competitive market, the market will always clear at the equilibrium price. If there is an equal increase in both demand and supply, the equilibrium price may increase, decrease or remain the same. However, there will be more units sold. In any competitive market, an equal increase in both demand and supply can be expected to always ____________.

  1. increase both price and market-clearing quantity

  2. decrease both price and market-clearing quantity

  3. increase market-clearing quantity

  4. increase price

  5. none of these

Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In a competitive market, the market will always clear at the equilibrium price. If there is an equal increase in both demand and supply, the equilibrium price may increase, decrease or remain the same. However, there will be more units sold.