Question

In the context of the news article, if the demand for the good or service increases due to a change in consumer preferences, what is likely to happen to the equilibrium price and quantity?

a) Equilibrium price increases, quantity increases
b) Equilibrium price decreases, quantity increases
c) Equilibrium price increases, quantity decreases
d) Equilibrium price decreases, quantity decreases

Answer 1

An increase in demand due to a change in consumer preferences typically leads to an increase in both the equilibrium price and equilibrium quantity of the good or service.

Step-by-step explanation:

When consumer preferences change and increase the demand for a good or service, the outcome in the market is a shift in the demand curve to the right. Drawing on the principles of supply and demand, as demand increases, producers can sell more of the good or service at a higher price, leading to an increase in both the equilibrium price and equilibrium quantity. The correct answer to the student's question is: a) Equilibrium price increases, quantity increases.

Here's a brief overview of the effects on equilibrium price and quantity for each scenario:

• Increase in demand: Leads to a higher equilibrium price and quantity.
• Decrease in demand: Leads to a lower equilibrium price and quantity.
• Increase in supply: Leads to a lower equilibrium price and a higher quantity.
• Decrease in supply: Leads to a higher equilibrium price and a lower quantity.