Answer to Question #145611 in Microeconomics for Muqddas khan

Question

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? Use supply and demand diagrams to verify your
answers.
a. Supply decreases and demand is constant.
b. Demand decreases and supply is constant.
c. Supply increases and demand is constant.
d. Demand increases and supply increases.
e. Demand increases and supply is constant.
f. Supply increases and demand decreases.
g. Demand increases and supply decreases.
h. Demand decreases and supply decreases.

Answer 1

a. Supply decreases and demand is constant.

When supply decreases and the demand is constant, the quantity demanded of the goods and services increases as the prices shoot up. This implies that the demand curve shifts to the left.

b. Demand decreases and supply is constant.

When the demand for goods and services decreases as supply remains constant, there is a net influx of more goods in the market as a consequence of decreased demand resulting in low prices hence the demand curve shifts to the right.

c. Supply increases and demand is constant.

When supply increases and the demand is constant, there is a net fall in the price of the commodity because of the net increase in the goods and services supplied in the market than demand resulting in the demand curve shifting to the right.

d. Demand increases and supply increases.

When demand increases and supply increases, is a balance in both the demand and supply which is the equilibrium point. This will neither affect demand, supply nor prices. The balance in equilibrium is achieved.

e. Demand increases and supply is constant.

When demand increases and supply remains, constant, the quantity demanded of the goods goes up as the prices also rise shifting the equilibrium to the left.

f. Supply increases and demand decreases.

Supply increases and demand decreases, the commodities increase in the market making the quantity demanded of the good and services to fall hence making the prices also fall because the demand is low. This shifts the equilibrium to the right.

g. Demand increases and supply decreases.

When demand increases and supply decreases, there is a shortage of goods and services in the market because of low supply making the prices go up because the supply cannot meet the quantity demanded. The equilibrium will shift to the left.

h. Demand decreases and supply decreases.

When demand decreases and supply decreases, there is no net shifting in the demand curve because the demand and supply are equal. At this point, the prices also remain constant