Explain with the help of a diagram a situation, when both demand and
supply curves shift to the right, but equilibrium price remains the same.
Answers
Answered by
1
In response to first part of your query, the price at which the market supply and market demand intersects with each other determines the equilibrium price and the corresponding quantity of output is called equilibrium output.
In response to second part of your query, an increase in the demand and the supply by the same proportion leaves the equilibrium price unchanged. When demand and supply increase in the same proportion:
E1 is the initial equilibrium with equilibrium price P1 and equilibrium output q1.
Now, let us suppose that the demand increases to D2D2 and the supply increase to S2S2 by the same proportion. The new demand and new supply curve intersect at E2, which is the new equilibrium, with a new equilibrium output q2, but the same equilibrium price P1. Thus, an increase in the demand and the supply by the same proportion leaves the equilibrium price unchanged.
In response to second part of your query, an increase in the demand and the supply by the same proportion leaves the equilibrium price unchanged. When demand and supply increase in the same proportion:
E1 is the initial equilibrium with equilibrium price P1 and equilibrium output q1.
Now, let us suppose that the demand increases to D2D2 and the supply increase to S2S2 by the same proportion. The new demand and new supply curve intersect at E2, which is the new equilibrium, with a new equilibrium output q2, but the same equilibrium price P1. Thus, an increase in the demand and the supply by the same proportion leaves the equilibrium price unchanged.
Similar questions