Question

What happens to price and quantity when supply and demand changes at the same time?

Macroeconomics

Answer 1

There can be various instances.

i) demand and supply both increase. In this case, the equilibrium quantity increases, and the price change depends upon the magnitude of the shift of the two curves. The price may increase, decrease or remain constant.

ii) demand and supply both decrease. In this case equilibrium quantity falls. Again price depends upon magnitude of shift.

iii) demand increases and supply decreases. Price increases. Quantity depends upon magnitude of shift of the curves.

iv) supply increases and demand decreases. Price falls. Quantity depends on the magnitude of the shift of the curves.