Assume the typical shapes of the demand and supply curves.If both demand and supply increase in a competitive market,the equilibrium price will
A) always rise
B) always fall
C) rise if demand increases more than supply increases
D) fall if demand increases more than supply increases
E) remain unchanged

Question

Quizplus · Accepted Answer

If both demand and supply increase, the equilibrium quantity will definitely increase. However, the direction of the price change will depend on the relative magnitude of the shifts. If the increase in demand is greater than the increase in supply, the demand curve will shift further to the right, which will cause the equilibrium price to rise. If the increase in supply is greater than the increase in demand, the supply curve will shift further to the right, which will cause the equilibrium price to fall. Therefore, choice C is the best answer because it accounts for the possibility of both demand and supply increasing and the direction of the price change being dependent on the relative sizes of the shifts.

Assume the Typical Shapes of the Demand and Supply Curves