Suppose starting from an initial equilibrium, there is an increase in demand and an increase in supply. This would imply that:
A) The new equilibrium quantity is certainly higher but the effect on the new equilibrium price is ambiguous; it can be higher than, lower than or the same as the price in the initial equilibrium.
B) The new equilibrium price is certainly higher but the effect on the new equilibrium quantity is ambiguous; it can be higher than, lower than or the same as the quantity in the initial equilibrium.
C) In the new equilibrium price is higher and the quantity bought and sold is lower.
D) In the new equilibrium price is lower and the quantity bought and sold is higher.

Question

Quizplus · Accepted Answer

When both demand and supply increase, the equilibrium quantity will definitely increase because both shifts support a higher quantity being traded. However, the effect on price is ambiguous because the increase in demand tends to push prices up, while the increase in supply tends to push prices down.

Suppose Starting from an Initial Equilibrium, There Is an Increase