The price of X was $10 in year 1 and $14 in year 2. Which of the following could be the correct reason for the rise in price?
A)The demand for X was lower in year 2 than in year 1, ceteris paribus .
B)The supply of X was greater in year 2 than in year 1, ceteris paribus .
C)The demand for X was higher and the supply of X was lower in year 2 than in year 1.
D)The demand for X was lower and the supply of X was greater in year 2 than in year 1.

Question

Quizplus · Accepted Answer

The rise in price of X from year 1 to year 2 could only be explained by an increase in demand and decrease in supply. Option A is incorrect because a lower demand would lead to a decrease in price not an increase. Option B is incorrect because an increase in supply would lead to a decrease in price not an increase. Option D is incorrect because both low demand and high supply would lead to a decrease in price.

The Price of X Was $10 in Year 1 and $14