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JAMB Economics 1983 Question 2

Question 2

Price Determination

A downward sloping demand curve intersects a fixed supply curve. A shift of this demand curve to the right implies that

  1. A.both price and quantity will increase
  2. B.only price increases
  3. C.only quantity increases
  4. D.the price remains constant
  5. E.the price falls.
Show the answer and explanation

Answer: B (only price increases)

Explanation

A fixed supply curve is vertical: the quantity cannot change. When demand shifts to the right, the new equilibrium is higher up the same vertical line, so only the price increases.