Answer to Question #119871 in Finance for Ameer Hamza

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 is constant

Answer 1

DEMAND AND SUPPLY.

Demand and supply are the two main aspects that determines the price in an equilibrium market , however ,this factors keeps on changing now and then. Their change will always have a unique change in the market as shown below:

A). Demand increase will lead to an increase in equilibrium price as well as equilibrium quantity . On the other side supply decrease will lead to a decrease in equilibrium quantity and an increase in equilibrium price.

B). When demand increases and supply remain constant it leads to a higher equilibrium price and higher quantity.

*NB- demand increase= increase in supply.