Question

Suppose the intercept of the demand function increases by two (2), while the slope remains the same. If the supply function remains the same, estimate the new equilibrium price and quantity

Answer 1

At equilibrium, supply is equal to demand. An increase in demand leads to a decrease in quantity and a price increase.

Therefore;

At equilibrium

$Q = D$

When demand is increased by $2$

The new equation is

$Q = 2D$ since the supply remains constant.

If the demand increases by $2,$ quantity decreases by 2 and price increases by 2.

$\therefore$ new quantity and prices at equilibrium are as follows

$Q' =\frac{Q}{2}$

$P' = 2P$