The horizontal axis is labeled quantity. The vertical axis is labeled price. The horizontal axis marks Q 1 and Q 2 from left to right. The vertical axis marks P 1 and P 2 from bottom to top. The graph shows a rising line labeled supply and two falling lines labeled D 1 and D 2. Point of intersection of supply line and D 1 is (Q 1, P 1) and point of intersection of supply line and D 2 is (Q 2, P 2).

Refer to the above graph showing the market for a product. Which of the following could explain the indicated increase in equilibrium price from P1 to P2?

Question

The horizontal axis is labeled quantity. The vertical axis is labeled price. The horizontal axis marks Q 1 and Q 2 from left to right. The vertical axis marks P 1 and P 2 from bottom to top. The graph shows a rising line labeled supply and two falling lines labeled D 1 and D 2. Point of intersection of supply line and D 1 is (Q 1, P 1) and point of intersection of supply line and D 2 is (Q 2, P 2).

Refer to the above graph showing the market for a product. Which of the following could explain the indicated increase in equilibrium price from P1 to P2?

BlackTom AI · Accepted Answer

An increase in demand (a rightward shift of the demand curve) raises both the equilibrium price and the equilibrium quantity; that is the key comparative-statics result here.

1. Relevant concepts and knowledge points
- Market equilibrium is at the intersection of supply and demand. 
- A rightward shift of the demand curve (increase in demand) with supply unchanged raises equilibrium price and quantity. 
- A normal good is one for which demand increases when consumer incomes rise. 
- Shifts in supply (left or right) have opposite quantity effects to demand shifts and must be distinguished from demand shifts.

2. Step-by-step reasoning
- Initially equilibrium is at the intersection of Supply and D1: (Q1, P1). 
- The graph shows demand moving from D1 to D2 (rightward). Supply stays in the same position. 
- The new equilibrium is at the intersection of Supply and D2: (Q2, P2). Q2 > Q1 and P2 > P1. 
- Therefore the observed rise in price from P1 to P2 and increase in quantity from Q1 to Q2 is explained by an increase in demand.

3. Calculations / intermediate steps
- No numerical calculations are needed; the graphical comparative statics give: demand shift right → equilibrium price increases (P2 > P1) and equilibrium quantity increases (Q2 > Q1).

4. Why the correct answer is correct
- "Rising incomes if the product is a normal good" increases consumers’ willingness to buy at every price, shifting demand right (D1 → D2). This produces the exact pattern shown: higher equilibrium price (P1 → P2) and higher equilibrium quantity (Q1 → Q2).

5. Why the other options are incorrect
- "A decrease in the number of buyers" would shift demand left, lowering equilibrium price and quantity (opposite effect).
- "Producers expect that prices will be higher in the future" typically causes current supply to decrease (leftward shift) as producers withhold supply, which raises price but reduces current quantity (price up, quantity down) — not consistent with quantity rising.
- "A decrease in resource prices" lowers production costs and shifts supply right, which would lower equilibrium price (not raise it), though quantity would increase.

6. Conclusion
The graph is consistent with an increase in demand; thus the correct answer is: rising incomes if the product is a normal good. This matches the provided answer.

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