If both demand and supply increase, then the equilibrium price A) and equilibrium quantity increases. B)...

If both demand and supply increase, then the equilibrium price A) and equilibrium quantity increases. B) falls but the equilibrium quantity increases. C) could either rise or fall, but the equilibrium quantity increases. D) rises, and the equilibrium quantity could either increase or decrease. E) falls, and the equilibrium quantity could either increase or decrease.

Expert Solution

Answer correct is option C) because when demand and supply both increase then downward sloping demand curve shifts up towards right and upward supply curve shifts down towards right. This shift results in increase in equilibrium quantity but equilibrium price could either rise or fall. Equilibrium price will rise if in case increase in supply is lesser than increase in demand and equilibrium price may fall if in case increase in supply is more than increase in demand.

Option A) is incorrect because equilibrium price could also fall if increase in supply results in a larger shift than shift in demand curve due to increase in demand.

Option B) is incorrect because equilibrium price could also rise if increase in supply results in a smaller shift than shift in demand curve due to increase in demand.

Option D) is incorrect because equilibrium price could also fall if increase in supply results in a larger shift than shift in demand curve due to increase in demand and increase in both supply and demand will increase the equilibrium quantity.

Option E) is incorrect because equilibrium price could also rise if increase in supply results in a smaller shift than shift in demand curve due to increase in demand and increase in both supply and demand will increase the equilibrium quantity.

Rahul Sunny answered 2 years ago

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