Answer to Question #120022 in Microeconomics for Gulshan

Question

Q1. KEY QUESTION 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?a. Demand increases and supply decreases
b. Demand increases and supply constant
Please answer with example and graph.

Answer 1

To explain the above graph i wold like to use the demand and supply of sugar in the market as an example:

• An increase in demand for sugar leads to rise in equilibrium price hence causing the demand curve shift to the right while a decrease in supply of sugar causes the equilibrium price to increase hence causing the supply curve shift to the left
• Also an increase in demand for sugar when supply remains constant then it leads to high equilibrium price and quantity