If demand increases while supply is fixed, the equilibrium price tends to:

If demand increases while supply is fixed, the equilibrium price tends to:

• A. Rise
• B. Fall
• C. Be unchanged
• D. Become unpredictable

Answer: (D)

When demand increases while supply is fixed, prices rise. Think of the demand curve shifting to the right, meaning buyers want more at every price. Because the supply is fixed, the market can’t increase the quantity available, so there’s now excess demand at the original price. Voilà, buyers bid the price up until the higher price reconciles the quantity demanded with the fixed quantity supplied. The new equilibrium occurs at a higher price, with the traded quantity equal to the fixed supply. So the price moves upward in a predictable way, not downward, not staying the same, and not becoming random.

When demand increases while supply is fixed, prices rise. Think of the demand curve shifting to the right, meaning buyers want more at every price. Because the supply is fixed, the market can’t increase the quantity available, so there’s now excess demand at the original price. Voilà, buyers bid the price up until the higher price reconciles the quantity demanded with the fixed quantity supplied. The new equilibrium occurs at a higher price, with the traded quantity equal to the fixed supply. So the price moves upward in a predictable way, not downward, not staying the same, and not becoming random.