Q.What will happen to price, when demand increases but supply remains constant :

With supply fixed, a rise in demand causes a shortage at the old price, bidding the price up to a new, higher equilibrium. Answer: (b) Price increases.

Market price is determined where the quantity demanded equals the quantity supplied (equilibrium). Starting from equilibrium, suppose demand increases (the demand curve shifts to the right) while supply remains constant (the supply curve does not move).

At the old price, buyers now want to purchase more than before, but the available supply is unchanged. This creates excess demand (a shortage) at the old price. Competition among buyers to obtain the limited goods bids the price upward. As price rises, quantity demanded is choked back and quantity supplied along the fixed supply curve expands slightly, until a new equilibrium at a higher price (and higher quantity) is reached.

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