Question

10. An increase in supply is the same as:
A. a movement up along a supply curve
B. a change in the good's price
C. a shift rightward in the supply curve.
D. a shift leftward in the supply curve.
E. Both A and D.

11. Which of the following statements is (are) correct?
(x) The unique point at which the supply and demand curves intersect is called equilibrium and the equilibrium
price is the only price where quantity supplied equals quantity demanded.
(y) If the quantity supplied is less than the quantity demanded then a shortage exists and the price must rise
to reach equilibrium.
(z) If the quantity supplied exceeds the quantity demanded then a surplus exists and the supply curve must
shift to the left in order to move the price to its equilibrium.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (x) only

Answer 1

10. An increase in supply is caused due to factors other than price while an increase in quantity supplied is caused due to a change in price. A change in other factors leads to a parallel shift in the supply curve while a change in price leads to a movement along the curve.

As we are told that the supply has increased, it will lead to a right ward parallel shift in the supply curve. So only option C is correct.

11.

• Statement (x) is correct as the point of intersection of supply and demand curves is called equilibrium and at his point the quantity supplied equals quantity demanded.
• Statement (y) is correct : quantity supplied < the quantity demanded = shortage when too much money chases too few goods then there is inflation or a price rise..
• Statement (z) is correct: quantity supplied > the quantity demanded = surplus
  • If the supply curve shifts left, it means a price rise and a reduction in quantity supplied.
  • Price  rise leads to a reduction in demand and therefore lowering of surplus
  • Reduction in quantity supplied also reduces surplus
• So all statements are correct and therefore option A is correct