In economic terms, what happens when demand increases while supply remains constant?

• A. The price typically rises and equilibrium quantity may rise.
• B. The price falls and quantity rises.
• C. The price rises but quantity falls.
• D. The price remains constant and quantity falls.

Answer: (A)

When demand rises while supply stays the same, the demand curve shifts to the right and the market must clear at a higher price. The fixed supply can’t meet the new higher level of demand at the old price, so sellers charge more. At this higher price, the amount actually transacted tends to be larger than before if suppliers can respond by producing more, but if supply is perfectly inelastic, the quantity traded might not change. That combination—a higher price and a potential, but not guaranteed, increase in quantity—makes the best answer that the price rises and the equilibrium quantity may rise.