When market supply increases , the equilibrium price_________

Analyze the question: The question asks what happens to equilibrium price and quantity when market supply increases (assuming demand stays constant).

Concept: Equilibrium is where the demand curve meets the supply curve. An increase in supply shifts the supply curve to the right.

Step-by-step solution:

1. At the old equilibrium price, the new supply is greater than demand. This creates a surplus (excess supply).
2. Sellers compete to get rid of the surplus, so the price falls.
3. As price falls, consumers buy more (a movement along the demand curve, so quantity demanded rises). Producers also supply a little less than they wanted to at the higher price (a movement along the new supply curve).
4. A new equilibrium is reached at a lower price and a higher quantity.

Checking the options:

• A. Price rises and quantity falls: this describes a decrease in supply. Wrong.
• B. Price falls and quantity rises: matches our analysis. Correct.
• C. Price and quantity both increase: this would need an increase in demand. Wrong.
• D. Price and quantity both fall: this would need a decrease in demand. Wrong.

Exam tip: Remember that supply and price move in opposite directions, so more supply means a lower price. Then use this quick guide:

• Supply up: price down, quantity up
• Supply down: price up, quantity down
• Demand up: price up, quantity up
• Demand down: price down, quantity down