TutorOn by Sanath Withanage

Question:

If both demand and supply increase simultaneously, then:
(1) the equilibrium price and the equilibrium quantity will increase.
(2) the equilibrium price will fall but the equilibrium quantity will increase.
(3) the equilibrium price could rise or fall but equilibrium quantity will increase.
(4) the equilibrium price will rise but the equilibrium quantity could increase or decrease.
(5) the equilibrium price will fall and the equilibrium quantity could increase or decrease.

Correct Answer:

(3)

Answer Explanation:

When both demand and supply shift to the right, more is traded, so equilibrium quantity definitely increases. However, the effect on equilibrium price depends entirely on the relative magnitude of the two shifts.

Topic: Demand & Supply Year: 2023