Question

to answer three questions regarding simultaneous shifts of demand curve and supply curve. How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do price and quantity rise, fall, or remain unchanged, or are the answers indeterminate because they depend on the magnitudes of the shifts? Download and get a print out of the attached file. Then draw supply and demand curves on it using a pen in the space provided below to support your answers and upload a picture of the page on this link within the due date. Thank you.

1. Demand increases and supply increases.

2. Supply increases and demand decreases.

3. Demand decreases and supply decreases

Answer 1

1) Demand increases and supply increases. Demand curve shifts right and supply curve shifts right. Assume the size of shift is same. Then price level rises due to demand shift and falls due to supply shift. This suggests that price level may rise, fall, or remain unchanged depending on the size of shift. Quantity traded rises due to demand shift and rises due to supply shift. Hence quantity traded rises.  

2) Supply increases and demand decreases. Demand curve shifts left and supply curve shifts right. Assume the size of shift is same. Then price level falls due to demand shift and falls due to supply shift. This suggests that price level will decline. Quantity traded falls due to demand shift and rises due to supply shift. Hence quantity traded may rise, fall or remain unchanged depending on the size of shift.

3) Demand decreases and supply decreases. Demand curve shifts left and supply curve shifts left. Assume the size of shift is same. Then price level falls due to demand shift and rises due to supply shift. This suggests that price level may rise, fall, or remain unchanged depending on the size of shift. Quantity traded falls due to demand shift and falls due to supply shift. Hence quantity traded falls