Question

When demand goes up, what happens to price and quantity?

A. P goes up and Q goes down
B. P goes down and Q goes up
C. P and Q go down
D. P and Q go up
E. One change in P or Q will be indeterminate

Answer 1

When demand increases, both the price and quantity increase. This happens because the demand curve shifts to the right, indicating higher demand at every price level, which results in a higher equilibrium price and quantity. The correct option is D.

Step-by-step explanation:

When demand goes up, both price and quantity supplied typically increase. This is illustrated by the demand curve shifting to the right, from D0 to D1. Here's what happens in the four scenarios:

• Increase in demand: The demand curve shifts rightward, leading to a higher equilibrium price and quantity.
• Decrease in demand: The demand curve shifts leftward, resulting in a lower equilibrium price and quantity.
• Increase in supply: The supply curve shifts rightward, causing a lower price but a higher quantity.
• Decrease in supply: The supply curve shifts leftward, resulting in a higher price and a lower quantity.

Therefore, the correct answer to the student's question is D, price (P) and quantity (Q) both go up when demand increases.