The correct answer is: C. Supply decreases and demand increases.
When equilibrium price rises but equilibrium quantity remains unchanged, it means that the demand for the good has increased more than the supply has decreased. This can happen for a number of reasons, such as:
- A change in consumer preferences. If consumers suddenly start to want a good more than they did before, the demand for that good will increase. This can happen for any number of reasons, such as a new advertising campaign, a change in the weather, or a change in the price of a substitute good.
- A change in the number of consumers. If there are more people who want to buy a good, the demand for that good will increase. This can happen due to population growth, immigration, or a change in age demographics.
- A change in the price of related goods. If the price of a substitute good decreases, the demand for the good in question will increase. This is because consumers will now be able to buy more of the good in question for the same amount of money. Conversely, if the price of a complementary good increases, the demand for the good in question will decrease. This is because consumers will now have less money to spend on the good in question.
- A change in income. If people have more money to spend, they will tend to demand more goods and services. This includes the good in question.
In contrast, if the supply of a good decreases, the equilibrium price will increase but the equilibrium quantity will decrease. This is because the higher price will discourage some consumers from buying the good, while the lower quantity will encourage some producers to produce more of the good.
Therefore, the only option that can explain a situation where the equilibrium price rises but the equilibrium quantity remains unchanged is option C: Supply decreases and demand increases.