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Market Equilibrium — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsMarket Equilibrium4 Marks
Question
When will (a) simultaneous increase and (b) simultaneous decrease in both demand and supply, not affect the equilibrium price? Explain with the help of diagrams.
✓

Answer

Case I:(When both demand and supply of a commodity simultaneously increase) When both demand and supply of a commodity increase in equal proportion, then there is no change in equilibrium price but the equilibrium quantity will increase.

In the diagram, supply increases, so, the supply curve shifts from SS to S1S1 and demand increases, so, the demand curve shifts from DD to D1D1 Both demand andsupply increase in equal proportion, therefore equilibrium price remains unchanged at OP but equilibrium quantity increases from OQ to OQ1. Case II:(When both demand and supply of a commodity simultaneously decrease). When both demand and supply of a commodity decrease in equal proportion, then there is no change in equilibrium price but the equilibrium quantity will decrease.

In the diagram, supply decreases, so, the supply curve shifts from SS to S0S0 and demand decreases, so, the demand curve shifts from DD to D0D0. Both demand and supply decrease in equal proportion, therefore, the equilibrium price remains unchanged at OP but the equilibrium quantity decreases from OQ to OQ0.

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