With a fixed number of firms, which of the following statements is NOT correct?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → A rightward shift of the demand curve raises the equilibrium price but lowers the equilibrium quantity.
With a fixed number of firms, a shift of the demand curve moves the price and the quantity in the same direction.
Option (1) After a leftward shift of the demand curve, there is excess supply at the old equilibrium price. — True. Buyers now want less at the old price, so supply is more than demand there.
Option (2) A rightward shift of the demand curve raises the equilibrium price but lowers the equilibrium quantity. — False. A rightward shift raises both the equilibrium price and the equilibrium quantity.
Option (3) A leftward shift of the demand curve lowers both the equilibrium price and the equilibrium quantity. — True. Firms cut the price to sell their stock; the new equilibrium has a lower price and a lower quantity.
Option (4) After a rightward shift of the demand curve, there is excess demand at the old equilibrium price. — True. Buyers now want more at the old price, so demand is more than supply there.
NCERT (2026-27): “Demand Shift … Now suppose the market demand curve shifts rightward to DD2 with supply curve remaining unchanged at SS0, as shown in panel (a). This shift indicates that at any price the quantity demanded is more than before. Therefore, at price p0 now there is excess demand in the market equal to q0q''0 . In response to this excess demand some individuals will be willing to pay higher price and the price would tend to rise. The new equilibrium is attained at G where the equilibrium quantity q2 is greater than q0 and the equilibrium price p2 is greater than p0.” “Demand Shift … Similarly if the demand curve shifts leftward to DD1, as shown in panel (b), at any price the quantity demanded will be less than what it was before the shift. Therefore, at the initial equilibrium price p0 now there will be excess supply in the market equal to q'0 q0 in response to which some firms will reduce the price of their commodity so that they can sell their desired quantity. The new equilibrium is attained at the point F at which the demand curve DD1 and the supply curve SS0 intersect and the resulting equilibrium price p1 is less than p0 and quantity q1 is less than q0. Notice that the direction of change in equilibrium price and quantity is same whenever there is a shift in demand curve.” |