Figure 3.5 -In Figure 3.5, if the change in demand occurred before the change in supply, then starting from the initial equilibrium, A) firms would experience a fall in profits and then a gradual increase in profits after the change in supply occurred. B) there would be an immediate shortage until the price reached P₂. C) price would change from P₁ to P₂ after the change in demand and would change again from P₃ to P₄ after the change in supply. D) there would be a surplus until the price reached P₄. E) none of these would occur.

Question

Quizplus · Accepted Answer

If the change in demand occurred before the change in supply, there would be an immediate shortage until the price reached the new equilibrium point (P₂). This is because the increase in demand would cause the quantity demanded to exceed the quantity supplied at the initial equilibrium price (P₁). However, once the supply increased, the market would reach a new equilibrium point at P₂, at which there would be neither a shortage nor a surplus.

Figure 3.5 -In Figure 3.5, If the Change in Demand Occurred Before