True or False: When both the demand and supply curves shift, you can always determine the...

True or False: When both the demand and supply curves shift, you can always determine the effect on price and quantity without knowing the magnitude of the shifts.?

Expert Solution

A shift in the demand curve and the supply curve changes the price and the quantity of a good. The rightward shift of both demand and supply curves indicate the quantity of a good increase but the price increases or decreases depends upon the magnitude of shift of the demand and supply curves.

Case 1: When the demand and supply curves shift rightward with the same magnitude than the quantity increases but the price remains the same. The following diagram shows this:

Case 2: The demand and supply curves shift rightward, but the demand curve shift by a larger proportion and the supply curve shift by a smaller proportion. In this case, the quantity and price both increases. The following diagram shows this:

Case 3: The demand and supply curves shift rightward, but the demand curve shift by a smaller proportion and the supply curve shift by a larger proportion. In this case, the quantity increases and price decreases. The following diagram shows this:

Hence, the given statement is false.

Rahul Sunny answered 2 years ago

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