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JAMB Economics 1995 Question 17

Question 17

Price Determination

Which of the following statements is TRUE of the effect of changes in demand and supply on price?

  1. A.A decrease in supply will lead to a fall in price and a fall in the quantity bought and sold
  2. B.An increase in demand will lead to a fall in price and in the quantity bought and sold
  3. C.A decrease in demand will lead to a rise in price and in the quantity bought and sold
  4. D.An increase in supply will lead to a fall in price and a rise in the quantity bought and sold.
Show the answer and explanation

Answer: D (An increase in supply will lead to a fall in price and a rise in the quantity bought and sold.)

Explanation

When supply increases the supply curve shifts right, so the equilibrium price falls and a larger quantity is bought and sold.