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Market Equilibrium — Economics STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceEconomicsMarket Equilibrium6 Marks
Question
What would be an effect on equilibrium price and quantity when demand and supply both shifts rightward?
OR
What would be an effect on equilibrium price and quantity when there is simultaneous increase in demand and supply?

OR
"If the demand and supply of a commodity both increase, the equilibrium price may not change, may increase, may decrease." Explain using diagrams.

OR
Market for a good is in equilibrium. There is simultaneous "increase" both in demand and supply of the good. Explain its effect on market price.
✓

Answer

There are three cases: Case I: When demand and supply both increase at the same rate In the given 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 when "demand and supply both increase at the same rate" then,
  1. Equilibrium price remains constant at OP.
  2. Equilibrium quantity rises from OQ to $OQ_1$.

Case II: When demand increases, supply also increases but at a much faster rate In the given 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 when "demand increases and supply also increases but at a much faster rate", then,
  1. Equilibrium price falls from OP to $OP_1$
  2. Equilibrium quantity rises from OQ to $OQ_1​​​​​​​$​​​​​​​.

Case III: When supply increases, demand also increases but at a much faster rate In the given 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 when "supply increases and demand also increases but at a much faster rate" then,
  1. Equilibrium price rises from OP to $OP_1$​​​​​​​.
  2. Equilibrium quantity also rises from OQ to $OQ_1$​​​​​​​.

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