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JAMB Economics 2002 Question 34

Question 34

Price Determination

The effect of an increase in demand for a commodity accompanied by a decrease in supply will be to

  1. A.raise the price of the commodity and affect the quantity in an indeterminate way
  2. B.decrease the equilibrium quantity and affect the price in an intermediate way
  3. C.raise its price as well as the equilibrium quantity
  4. D.lower its price while affecting the equilibrium quantity in an indeterminate way
Show the answer and explanation

Answer: A (raise the price of the commodity and affect the quantity in an indeterminate way)

Explanation

Both changes push the price up. Higher demand raises quantity but lower supply reduces it, so the change in quantity depends on which is bigger.