If the demand for a commodity increases while supply remains unchanged, what happens to the equilibrium price?

If the demand for a commodity increases while supply remains unchanged, what happens to the equilibrium price?

• A. It rises
• B. It falls
• C. It remains the same
• D. It becomes unpredictable

Answer: (A)

When demand increases while supply stays the same, the demand curve shifts to the right while the supply curve remains fixed. At the old price, more buyers want the good than producers are willing to sell, creating excess demand. To restore balance, the price must rise until the quantity demanded falls to match the fixed quantity producers are willing to supply. The result is a higher equilibrium price (and a higher equilibrium quantity than before, along the same supply curve). So the equilibrium price rises. It wouldn’t fall or stay the same, and it isn’t unpredictable, because the model predicts that a rightward shift in demand with unchanged supply pushes the price up.

When demand increases while supply stays the same, the demand curve shifts to the right while the supply curve remains fixed. At the old price, more buyers want the good than producers are willing to sell, creating excess demand. To restore balance, the price must rise until the quantity demanded falls to match the fixed quantity producers are willing to supply. The result is a higher equilibrium price (and a higher equilibrium quantity than before, along the same supply curve). So the equilibrium price rises. It wouldn’t fall or stay the same, and it isn’t unpredictable, because the model predicts that a rightward shift in demand with unchanged supply pushes the price up.