If the demand and supply curves for product X are stable, a government-mandated increase in the price of X will

A) increase the supply of X and decrease the demand for X.
B) increase the demand for X and decrease the supply of X.
C) increase the quantity supplied of X and decrease the quantity demanded of X.
D) decrease the quantity supplied of X and increase the quantity demanded of X.

Question

Morgan Roberts · Accepted Answer

Final Answer : C, Explanation :  If the demand and supply curves for product X are stable, then there is an equilibrium price and quantity where the quantity demanded equals the quantity supplied. A government-mandated increase in the price of X will result in an increase in the quantity supplied (because suppliers will be willing to supply more at the higher price) and a decrease in the quantity demanded (because consumers will be less willing to buy the same quantity at a higher price). This means that there will be an excess supply of X at the new higher price, which will push the price back down towards the equilibrium level. The final result will be a new equilibrium with a higher price and a lower quantity exchanged compared to the initial stable equilibrium.

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