Question

Discuss the effect of upward shifting of Demand and Supply curve on equilibrium price and quantity.

Hint:

Shifts in the demand and supply curves cause changes in equilibrium price and quantity, with demand shifts affecting both, and supply shifts affecting price inversely.

Answer 1

Step 1: Understand the demand and supply curves.
- **Demand Curve:** Represents the relationship between the price of a good and the quantity demanded, with a negative slope (i.e., as price decreases, quantity demanded increases). - **Supply Curve:** Represents the relationship between the price of a good and the quantity supplied, with a positive slope (i.e., as price increases, quantity supplied increases).
Step 2: Effect of an Upward Shift in the Demand Curve.
An upward shift in the demand curve means that at every price level, consumers are willing to buy more of the good. This can be due to factors such as increased income, changes in consumer preferences, or external factors like seasonal demand. The effects of the shift are: - **Equilibrium Price:** The equilibrium price will rise because the higher demand puts pressure on the price level to increase. - **Equilibrium Quantity:** The quantity of the good exchanged in the market will also increase because producers respond to higher prices by supplying more.
Step 3: Effect of an Upward Shift in the Supply Curve.
An upward shift in the supply curve means that at every price level, producers are willing to supply more of the good. This shift could occur due to technological improvements, reduction in production costs, or favorable government policies. The effects are: - **Equilibrium Price:** The equilibrium price will fall as the supply of goods increases, putting downward pressure on the price level. - **Equilibrium Quantity:** The quantity of the good exchanged will increase because there is more supply in the market at lower prices, encouraging consumption.
Step 4: Conclusion.
In summary, an upward shift in the demand curve increases both the equilibrium price and quantity, while an upward shift in the supply curve increases equilibrium quantity but decreases the equilibrium price. Final Answer: \[ \boxed{\text{An upward shift in demand increases both price and quantity, while an upward shift in supply increases quantity and decreases price.}} \]