(c) A simultaneous increase in demand and supply keeps the price constant
Answers
The increase in demand = The increase in supply
If the increase in both demand and supply is exactly equal, there occurs a proportionate shift in the demand and supply curve. Consequently, the equilibrium price remains the same. However, the equilibrium quantity rises.
HOPE IT'S HELP YOU
Thank you
There are times when both demand and supply change at the same time. For example, during a war, shortage of goods decreases supply, while high employment levels and total wage payments increase the demand too. The following figure shows various scenarios of the effect of simultaneous changes in demand and supply on the equilibrium price.
simultaneous changes in demand and supply
In the figure above, DD is the original demand curve and SS is the supply curve. The point E, where both these curves meet refers to OP – the equilibrium price and OQ – the quantity bought and sold.
Refer to Fig. 1 (a)
Fig. 1 (a) shows a scenario where the increase in demand is equal to the increase in supply. Therefore, the new demand curve, D1D1, and the new supply curve, S1S1, meet at the new equilibrium point E1. Also, the new equilibrium price is equal to the old equilibrium price = OP.
Refer to Fig. 1 (b)
Fig. 1 (b) shows a scenario where the increase in demand is more than the increase in supply. Therefore, the new demand curve, D1D1, and the new supply curve, S1S1, meet at the new equilibrium point E1. However, in this case, the new equilibrium price, OP1, is higher than the old equilibrium price, OP.
On the other hand, if there is a fall in the demand and supply and the fall in demand is more than the fall in supply, then the new equilibrium price will become lower than the old equilibrium price.
Conversely, if there is a fall in the demand and supply and the fall in supply is more than the fall in demand, then the new equilibrium price will become higher than the old equilibrium price.