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18 November, 10:03

Suppose the demand for premium bottled water increases rapidly during 2018. At the same time, six more firms begin producing premium bottled water. A student remarks that, because of these events, we can't know for certain whether the price of premium bottled water will rise or fall. The student's remarks (that, because of these events, we can't know for certain whether the price of premium bottled water will rise or fall) is

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  1. 18 November, 12:48
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    Answer: Correct

    Explanation: When demand for a good rises and at the same time supply for it also rises, the quantity sold in the market will rise for certain. However, it cannot be determined what will be the effect on its price as the effect on price will depend on the magnitude of the shifts in the two curves. Thus, the student's remarks (that, because of these events, we can't know for certain whether the price of premium bottled water will rise or fall) is correct.
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