Future Business Leader Achievments (FBLA) Economics Practice Exam

Which of the following scenarios describes an increase in market equilibrium?

1. Increase in supply with no change in demand

2. Increase in demand with no change in supply

3. A reduction in consumer income

4. A decrease in production costs

The correct answer is: Increase in demand with no change in supply

An increase in demand with no change in supply leads to a higher market equilibrium. When demand increases, consumers are willing to purchase more of a good or service at each price level. This shift in demand causes the equilibrium price to rise, as suppliers will increase prices in response to the higher quantity consumers want to buy. As the price increases, the quantity supplied may also increase, but the initial impact of an increase in demand is to push both the equilibrium price and quantity up. Other options do not reflect an increase in market equilibrium effectively. For instance, an increase in supply with no change in demand would typically lower the equilibrium price. A reduction in consumer income would lead to a decrease in demand for normal goods, which would reduce the equilibrium price. A decrease in production costs can lead to an increase in supply, but without a change in demand, it would again lower the equilibrium price. Thus, the only scenario that results in an increase in both equilibrium price and quantity is when demand increases while supply remains constant.