Question

When examining the graph below, which describes the chain of events the market follows to reach a new equilibrium? S2 01 There is a decrease supply, creating a surplus, price begins to move resulting in a higher equilibrium price and lower equilibrium quantity There is an increase in supply, creating a surplus, price begins to move resulting in a higher equilibrium price and lower equilibrium quantity There is an increase in supply creating a surplus, price begins to move resulting in a lower equilibrium price and higher equilibrium quantity. There is an increase in demand, creating a surplus, price begins to move resulting in a higher equilibrium price and higher equilibrium quantity.

Answer 1

Answer Option C) There is increase in supply, creating a surplus; price begins to move resulting in a lower equilibrium price and higher equilibrium quantity.

By seeing the diagram it is clear that there is increase in supply , creating a surplus, price begins to move resulting in a lower equilibrium price and higher equilibrium quantity. There is increase in money supply from S1 to S2. Due to it supply is more than demand due to that there is increase in equilibrium quantity and fall in equilibrium price.