Question

In general, if a consumer good is produced domestically and consumed domestically, an increase in its price will have which of the following effects?

Answer 1

Excess Supply of that good will be created.

EXPLANATION :

Market Equilibrium (without external factors - import & export , of a domestically produced & consumed good) is where : Market Demand = Market Supply.

Demand & Supply are inversely & positively related to prices respectively (law of demand , law of supply)

So : An increase in price will increase supply and an increase in price will reduce demand.

This increased supply & decreased demand due to price rise will create Excess Supply (Supply > Demand)