Answer to Question #207272 in Microeconomics for Hoor

Question

If demand increases and supply declines the equilibrium price and quantity will both increases. Explain true or false?

Answer 1

If the demand increases while the supply declines, the equilibrium prices rise but the effect on the equilibrium quantity can't be easily determined. This is because the consumers attach a higher value on the commodity and as a result the producers set higher prices for the supply of the commodity thereby raising the price.