Answer to Question #284765 in Microeconomics for helenabebe

Question

What happens to the equilibrium price and quantity, when demand and supply both changes in equal proportion? (Increase, decrease or constant/uncertain)

Answer 1

When demand and supply remain constant in equal proportion, there is occurrence of a surplus that leads to lowered equilibrium price and quantity. Consequently, increase in demand and supply in equal proportion leads to constant equilibrium price and rise in quantity. However, similar decrease in both demand and supply causes a proportionate shift of both supply and demand curves. The equilibrium quantity decreases while the equilibrium price remains constant.