An increase in demand coupled with an increase in supply results in a(n)
A) increase in price and an ambiguous effect on equilibrium quantity
B) increase in equilibrium quantity and a decrease in equilibrium price
C) decrease in equilibrium quantity and an ambiguous effect on equilibrium price
D) increase in economic rent
E) ambiguous effect on equilibrium price and an increase in equilibrium quantity

Question

Quizplus · Accepted Answer

An increase in both demand and supply will lead to an increase in equilibrium quantity, as both factors are increasing the amount of the good consumers are willing and able to buy. However, the effect on equilibrium price is ambiguous, as it will depend on the relative magnitude of the shifts in demand and supply. If the increase in demand is larger than the increase in supply, then price would increase. If the increase in supply is larger than the increase in demand, then price would decrease. Therefore, the effect on equilibrium price is ambiguous.

An Increase in Demand Coupled with an Increase in Supply