Question

Assuming other factors constant, a growing population coupled with technological improvement in the market for food will have the effect of
a. decreasing equilibrium quantity with the equilibrium price change uncertain
b. increasing equilibrium quantity with the equilibrium price change uncertain
c. decreasing equilibrium price with the equilibrium quantity change uncertain
d. increasing equilibrium price with the equilibrium quantity change uncertain

Answer 1

Option B

increasing equilibrium quantity with the equilibrium price change uncertain.

Due to growing population the demand for food will increase. As a result the demand curve will shift towards right. Due to technological improvement, the supply of food will increase as more food can be produced in less time. As a result the supply curve will shift towards right. Both demand and supply for food will increase. As a result the new demand and supply curve will intersect at new Equilibrium Point. At this point, Equilibrium Quantity will definitely increase. This is because the total output will increase because buyers will demand more and sellers will produce more. But the effect on Equilibrium Price will be uncertain. It may increase, decrease or may remain unchanged. When both demand and supply increases equally, the Equilbrium Price will remain same. When increase in demand is more than increase in supply, then Equilbrium Price will rise. When increase in supply is more than increase in demand Equilibrium Price will fall. The change in Equilbrium Price will depend upon the maginitude of shift in demand and supply curves. The curve that shifts with larger magnitude will determine the impact on Equilibrium Price.