What would be an effect on equilibrium price and quantity when de… - Vidyadip

Question

What would be an effect on equilibrium price and quantity when demand and supply both increase at the same rate?
OR
Explain with the help of a diagram a situation when demand and supply curves shift to the right but equilibrium price remains the same.
OR
Market for a good is in equilibrium. What is the effect on equilibrium price and quantity if both the market demand and the market supply of the goods increase in the same proportion? Use diagram.

✓

Answer

When demand and supply both increase at the same rate, equilibrium price remains constant and equilibrium quantity rises. It can be shown with the help of the following diagram.

In the above diagram price is measured on vertical axis and quantity demanded and supplied is measured on horizontal axis. Initially, the equilibrium price is $OP$ and equilibrium quantity is $OQ$. But as given in the examination problem, "demand and supply both increase at the same rate", then,

Equilibrium price remains constant at $OP$.
Equilibrium quantity rises from $OQ$ to $OQ_1$

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