Question

In: Economics

Identify whether each of the following statements is true or false. a. If the demand and...

Identify whether each of the following statements is true or false.

a. If the demand and supply for a product both​ increase, the equilibrium quantity of the product must also increase.

A. True

B. False

b. If the demand and supply for a product both​ increase, the equilibrium price of the product must also increase.

A. True

B. False

c. If the demand for a product decreases and the supply of the product​ increases, the equilibrium price of the product may increase or​ decrease, depending on whether supply or demand has shifted more.

A. True

B. False

Solutions

Expert Solution

If the demand and supply for a product both​ increases. There can be three situations:

  • If increase in demand > increase in supply, price increases and quantity also increases.
  • If increase in demand = increase in supply, price remain same and quantity increases.
  • If increase in demand < increase in supply, price decreases and quantity increases.

a. If the demand and supply for a product both​ increase, the equilibrium quantity of the product must also increase. This statement is true.

b. If the demand and supply for a product both​ increase, the equilibrium price of the product must also increase. This statement is false because it depends on size of increase in demand and supply.

c.

If the demand decreases and supply for a product increases. There can be three situations:

  • If decrease in demand > increase in supply, price decreases and quantity also decreases.
  • If decrease in demand = increase in supply, price remain same and quantity remain same.
  • If decrease in demand < increase in supply, price decreases and quantity increases.

If the demand for a product decreases and the supply of the product​ increases, the equilibrium price of the product may increase or​ decrease, depending on whether supply or demand has shifted more. This statement is false as price will always decreases irresepective of size of shift.

Rahul Sunny answered 2 years ago
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