Question

Q12: Complete the following table by indicating how equilibrium price (P*) and equilibrium quantity (Q*) will change. Use + for increase, – for decrease, 0 for no change, and ? for unknown change. One of the cells has been filled in for you. When there is there is an increase in demand and no change in supply, P* increases and Q* increases.

  

	Increase in supply	No change in supply	Decrease in supply
Increase in demand	DP* = DQ* =	DP* = + DQ* = +	DP* = DQ* =
No change in demand	DP* = DQ* =	DP* = DQ* =	DP* = DQ* =
Decrease in demand	DP* = DQ* =	DP* = DQ* =	DP* = DQ* =

Answer 1

Increase in demand-Increase in supply:

Increase in demand shift the demand curve to the right. And the increase in supply will shift the supply curve to the right. This will increase the equilibrium quantity in the market. The equilibrium price may increase or remain unchanged or may decrease depending upon the amount by which the demand and supply is changing. If the supply and demand both increases by same amount, then the price will remain unchanged. If the supply increases more than the demand then the price will fall. If the supply increases less than the demand then the price will rise.

Increase in demand-No change in supply:

Increase in demand shift the demand curve to the right. The supply curve remain unchanged. The equilibrium price and quantity both will increase.

Increase in demand-Decrease in supply:

Increase in demand shift the demand curve to the right. And the decrease in supply will shift the supply curve to the left. This will raise the equilibrium price level and equilibrium output may remain unchange or rise or fall. If the change in supply is greater than the demand then the output will fall. If the supply changes less than the change in demand then the output will rise. if the change in supply and demand is equal then the output will remain unchanged.

No change in demand-Increase in supply:

Increase in supply will shift the supply curve to the right. And the demand will remain unchanged. This will increase the equilibrium quantity in the market. The equilibrium price will decrease.

No change in demand-No change in supply:

This will shift any of the curve, demand and supply curve, thus, the equilibrium price and quantity will not change.

No change in demand-Decrease in supply:

Increase in supply will shift the supply curve to the left. And the demand will remain unchanged. This will increase the equilibrium price in the market. The equilibrium output will decrease.

Decrease in demand-Increase in supply:

Decrease in demand shift the demand curve to the left. And the increase in supply will shift the supply curve to the right. This will reduce the equilibrium price in the market. The equilibrium quantity may increase or remain unchanged or may decrease depending upon the amount by which the demand and supply is changing. If the supply changes less than the change in demand then the output will fall. if the change in supply and demand is equal then the output will remain unchanged. If the change in supply is greater than the demand then the output will rise.

Decrease in demand-No change in supply:

Decrease in demand shift the demand curve to the left. The supply curve remain unchanged. The equilibrium price and quantity both will fall.

Decrease in demand-decrease in supply:

Decrease in demand shift the demand curve to the left. And the decrease in supply will shift the supply curve to the left. This will reduce the equilibrium quantity and increase the equilibrium price.

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