Explain what happens to the equilibrium price and quantity when demand and supply change simultaneously?? (Provide...

Explain what happens to the equilibrium price and quantity when demand and supply change simultaneously??

(Provide different examples for each case, make examples as

close as possible to reality. Please relate at least one case to COVID-19 pandemic)

Case 1: D (increase), S (increase),

Case 1: D (increase), S (decrease),

Case 1: D (decrease), S (decrease),

Case 1: D (decrease), S (increase).

Solutions

Expert Solution

Answer: Let us understand each case by assuming similar percentage change in both demand & supply.

Concept applies:

Law of Demand: Price Increases , demand Decreases and vice versa (The inverse relationship between demand & Price)

Law of Supply :Price Increases , Supply also Increase, Price Decreases , supply also Decreases (Direct relationship between Supply & Price)

Case 1: D (increase), S (increase): As both are increasing there will be no change in price.

Case 2: D (increase), S (decrease),: When demand increases and supply dicreases , price will increase. For example During covid 19 Mask and sanitizer demand increases, while supply was decreased due to lockdown, the price shoots up very high for both commodities initially.

Case 3: D (decrease), S (decrease): As both are Decreasing there will be no change in price.

Case 4: D (decrease), S (increase): As demand Decreases and supply increases, the price will fall down or decrease: example During covid 19 Mask and sanatizer prices starting to fall down dramatically after 6 months of pandemic , when many new companies started to produce both Mask and sanatizer , that lead higher supply and lower prices.

Rahul Sunny answered 1 year ago

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