A competitive market is in equilibrium.Then there is an increase in demand and an increase in supply.The equilibrium price ________,and the equilibrium quantity ________.
A) rises; increases
B) perhaps changes but we can't say if it rises, falls, or stays the same; does not change
C) falls; increases
D) perhaps changes but we can't say if it rises, falls, or stays the same; increases
E) falls; perhaps changes but we can't say if it increases, decreases, or stays the same

Question

Quizplus · Accepted Answer

When there is an increase in both demand and supply, the equilibrium quantity will definitely increase but we cannot say for sure whether the equilibrium price will rise, fall or remain the same. It will depend on the relative increase in demand and supply. Therefore, the best option is D, which acknowledges that the equilibrium quantity will increase while the effect on the equilibrium price is uncertain.

A Competitive Market Is in Equilibrium