Question

Suppose the market for a good is perfectly competitive and that it is initially in equilibrium. If the supply of the good increases and the demand for the good simultaneously increases, then equilibrium:

1) Will shift to a higher price and higher quantity
2) Will shift to a higher price and lower quantity
3) Will shift to a lower price and higher quantity
4) Will shift to a lower price and lower quantity

Answer 1

In a perfectly competitive market, if supply and demand both increase simultaneously, the equilibrium quantity will increase; however, the equilibrium price change depends on the relative shifts in supply and demand curves.

Step-by-step explanation:

When considering the market for a good that is perfectly competitive, an increase in both supply and demand simultaneously typically results in a new equilibrium point where the quantity is higher, but the effect on price is indeterminate without knowing the relative magnitudes of the supply and demand shifts. If the increase in demand is larger than the increase in supply, the equilibrium price will rise; if the increase in supply is larger than the increase in demand, the equilibrium price will fall. However, in both cases, because both supply and demand have increased, the equilibrium quantity will increase.