Question

Explain the three possible cases when both demand and supply are increasing?

Answer 1

There are 3 cases of decrease in demand and supply.

1) When both demand and supply decrease in the equal proportion the price will remain same but the equilibrium quantity will decrease.

2) When decrease in demand is more than the decrease in supply both equilibrium quantity and price will decrease.

3) When decrease in demand is less than decrease in supply the equilibrium price will rise and equilibrium quantity will increase.

B. There are 3 cases for increase in demand and supply.

1) when increase in demand and supply is equal the equilibrium quantity will increase but there will be no change in equilibrium price.

2) When increase in demand is more than increase in supply there is an increase in equilibrium price as well as quantity but increase in quantity is more than increase in equilibrium price.

3) When increase in demand is less than increase in supply there is an increase in equilibrium price and equilibrium quantity.