Question

Suppose the market for Good X is in equilibrium. Explain the chain effect, if:
a) increase in market demand is less than the decrease in market supply.
b) increase in market demand is more than the increase in market supply.

Answer 1

b opinion is correct

Answer 2

Equilibrium is a situation where the consumer plan and enterprise plan in the market are matching.

As demand and supply for a product in the market intersect the market is stated to be in an equilibrium condition.

The chain effect can only be experienced in substitute products. Tea and coffee, for example, are substitute products. Increase in market demand is less than the decrease in market supply for Good X in such a scenario.