Question

What happens to equilibrium price and quantity when there is a simultaneous increase in both demand and supply?

Hint:

Simultaneous shift rule:

• Same-direction shifts $\Rightarrow$ quantity certain
• Opposite price effects $\Rightarrow$ price uncertain
• Always compare relative magnitude of shifts

Answer 1

Concept: Equilibrium in a market is determined by the intersection of demand and supply curves. When both demand and supply increase simultaneously:

• Demand curve shifts right
• Supply curve also shifts right

The final effect depends on the relative magnitude of the shifts.
Effect on Equilibrium Quantity: Both increases push quantity upward:

• Higher demand $\Rightarrow$ higher quantity
• Higher supply $\Rightarrow$ higher quantity

\( \text{Equilibrium quantity definitely increases}\)
Effect on Equilibrium Price: Price effect is ambiguous because:

• Demand increase $\Rightarrow$ price rises
• Supply increase $\Rightarrow$ price falls

Thus outcome depends on which shift is stronger.

• If demand increase $>$ supply increase $\Rightarrow$ price rises
• If supply increase $>$ demand increase $\Rightarrow$ price falls
• If both equal $\Rightarrow$ price unchanged

Conclusion: \[ \text{Quantity increases for sure; price is indeterminate.} \]