Final answer:
An increase in demand with all other factors held constant leads to an increase in quantity supplied and a rise in equilibrium price. It does not increase supply directly, but prompts a shift along the supply curve, increasing the quantity supplied to meet higher demand.
"The correct option is approximately option A"
Step-by-step explanation:
When a market is in equilibrium, a change in market forces such as demand or supply will affect the equilibrium price and quantity. In the case of an increase in demand, holding all other factors constant, suppliers will respond to the higher demand by increasing the quantity supplied, aiming to meet the new market conditions. This scenario results in an increase in quantity supplied. The equilibrium price will also tend to rise because the higher demand puts an upward pressure on prices, which incentivizes suppliers to provide more of the product. It is important to note that, by itself, an increase in demand does not lead to an increase in supply; it simply leads to an increase in the quantity supplied. Supply changes only in response to changes in producer conditions such as cost of production or technological improvements.
Each of the four possible market shifts—increase in demand, decrease in demand, increase in supply, and decrease in supply—has different consequences for equilibrium price and quantity:
- An increase in demand with constant supply results in a higher equilibrium price and quantity.
- A decrease in demand with constant supply leads to a lower equilibrium price and quantity.
- An increase in supply with constant demand results in a lower equilibrium price and higher quantity.
- A decrease in supply with constant demand causes a higher equilibrium price and lower quantity.