Question
Increase in demand always causes a rise in price. Comment.
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Answer
It is only when other things (other determinants, other than own price of the commodity) remain constant that the increase in demand leads to increase in price. But if other things are not constant then this relationship may not hold good. For example, if there is an equal increase in supply, the price may not increase. In fact if the increase in supply is more than the increase in demand, the price may fall . Also, in a situation when supply is perfectly elastic (a horizontal straight line supply curve), price remains constant, no matter how much demand increases .
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