Suppose the market for a good is initially in equilibrium. Which of the following is most likely to occur if both the demand for and the supply of the good increases during a particular point in time?

Question

Quizplus · Accepted Answer

An increase in both demand and supply will result in an increase in the equilibrium quantity, as both factors push the market towards producing and consuming more of the good. The effect on equilibrium price is uncertain and will depend on the relative magnitude of the increases in demand and supply. If the increase in demand is relatively larger than the increase in supply, we would expect an increase in both equilibrium price and quantity. If the increase in supply is relatively larger, we would expect a decrease in equilibrium price and an increase in equilibrium quantity. However, since the question does not provide information on the relative magnitudes of the shifts, it is safest to choose the answer that is more certain, which is C.

Suppose the Market for a Good Is Initially in Equilibrium