Question

Suppose we are looking at the market for gold. Assume that the equilibrium price is $1,200 per ounce and the quantities bought and sold are 100 billion ounces. If there was a discovery of very large gold deposits in parts of the world, how would this discovery affect this market?

a) Increase in Price and Quantity
b) Decrease in Price and Quantity
c) Increase in Price, Decrease in Quantity
d) Decrease in Price, Increase in Quantity

Answer 1

The discovery of very large gold deposits in the world would lead to an increase in supply, resulting in a decrease in the equilibrium price of gold and an increase in the quantity bought and sold.

Step-by-step explanation:

When there is a discovery of very large gold deposits in parts of the world, it would lead to an increase in supply in the market for gold. As a result, the market equilibrium would be affected. The increase in supply would lead to a decrease in the equilibrium price of gold, as there is a larger quantity of gold available. Additionally, the equilibrium quantity bought and sold would also increase, as there is more supply available in the market.