Asked by Paolina Gonzalez on Jul 15, 2024
Verified
"If demand increases and supply decreases, then both the equilibrium price and quantity will increase." What conditions are necessary to make this statement true?
Equilibrium Price
The price at which the quantity of a good or service demanded by consumers equals the quantity supplied by producers, establishing market balance.
Equilibrium Quantity
The level of goods or services supplied matches the consumer demand at the price which establishes market equilibrium.
- Understand the concept of market equilibrium and its depiction through graphs.
- Analyze how government interventions, including taxes, price limits, and minimum price thresholds, influence market stability.
Verified Answer
BJ
Brooke JacksonJul 19, 2024
Final Answer :
For an increase in demand and a decrease in supply to result in an increase in both price and quantity, the shift in demand must be greater than the shift in supply. When demand increases both price and quantity of a good increase. The decrease in supply further raises the price but causes a decrease in quantity. Quantity can only increase if the increase caused by the shift in demand outweighs the decrease caused by the shift in supply.
Learning Objectives
- Understand the concept of market equilibrium and its depiction through graphs.
- Analyze how government interventions, including taxes, price limits, and minimum price thresholds, influence market stability.