Question

Assuming competitive markets with typical supply and demand curves, which of the following statements is correct?

a. An increase in demand with no change in supply will result in an increase in revenue.
b. Increase in supply with no change in demand will result in an increase in revenue.
c. Increase in supply with a decrease in demand will result in an increase in revenue.
d. Increase in supply with no change in demand will result in a decline in revenu

Answer 1

An increase in demand with no change in supply will result in an increase in revenue. Option a is the correct answer.

Step-by-step explanation:

A competitive market with typical supply and demand curves operates based on the interaction of supply and demand. In this scenario:

1. An increase in demand with no change in supply will result in an increase in revenue. When demand increases, the quantity demanded at each price level increases. As a result, producers can charge higher prices, leading to an increase in revenue.
2. An increase in supply with no change in demand will not result in an increase in revenue. When supply increases with no change in demand, the market experiences an excess supply situation, leading to a decrease in prices and potential revenue decline.
3. An increase in supply with a decrease in demand will not result in an increase in revenue. When supply increases but demand decreases, it can lead to a surplus situation. This excess supply can drive prices down, resulting in a decline in revenue.
4. An increase in supply with no change in demand will not result in a decline in revenue. When supply increases with no change in demand, the market experiences an excess supply situation, leading to lower prices but not necessarily a decline in revenue.