Correct Option
The correct option is Both equilibrium price and equilibrium quantity increase..
Explanation
Market equilibrium is the state where the quantity demanded by consumers equals the quantity supplied by producers. Graphically, this corresponds to the intersection point of the demand curve and the supply curve. Changes in equilibrium occur when either curve shifts.
Analysis
When the market demand curve shifts rightward while the supply curve remains unchanged, the following adjustments occur:
- Rightward Shift in Demand: A rightward shift signifies an increase in demand. This implies that at any given price, consumers are willing to purchase a larger quantity than before.
- Excess Demand: At the initial equilibrium price, the quantity demanded now exceeds the quantity supplied, creating a shortage or excess demand in the market.
- Price Adjustment: This excess demand puts upward pressure on the price. As the price rises, producers are incentivized to increase production (movement along the supply curve), while the quantity demanded contracts slightly from the new level until a balance is reached.
- New Equilibrium: The market settles at a new intersection point where both the equilibrium price and the equilibrium quantity are higher than the original levels.
Key Takeaway: An increase in demand (rightward shift) accompanied by a fixed supply curve invariably results in an increase in both the equilibrium price and the equilibrium quantity.