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Which of the following will happen if there is an increase in the number of buyers in a...

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skyler89 | Student, College Sophomore | Honors

Posted October 8, 2012 at 2:51 PM via web

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Which of the following will happen if there is an increase in the number of buyers in a competitive market at the same time that resource prices decrease?

The equilibrium price and equilibrium quantity to increase

The equilibrium price to decrease and the equilibrium quantity to increase

Given this information, it is impossible to determine what will happen to equilibrium price and quantity

Equilibrium quantity will increase; however, it is not possible to determine what will happen to equilibrium price given this information.

 

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted October 8, 2012 at 3:00 PM (Answer #1)

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The correct answer to this is the last of the options you have given; we know that the equilibrium quantity will rise, but we do not have enough information to know what will happen to the equilibrium price.

The increase in the number of buyers will cause demand to rise.  The decrease in the price of resources will cause supply to rise.  These two trends will both cause quantity to rise.  However, a rise in demand leads to a price increase while an increase in supply lowers prices.  Therefore, unless we know how much demand increases relative to supply, we cannot know what happens to the price.

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