Final answer:
The net effect on price depends on the relative magnitude of the increase in demand and the decrease in supply. If the increase in demand is greater than the decrease in supply, the price is likely to increase.
Conversely, if the decrease in supply is greater than the increase in demand, the price is likely to decrease.
Step-by-step explanation:
The net effect on price depends on the relative magnitude of the increase in demand and the decrease in supply. If the increase in demand is greater than the decrease in supply, the price is likely to increase.
Conversely, if the decrease in supply is greater than the increase in demand, the price is likely to decrease.
For example, let's consider the market for smartphones. If there is a new technology that increases the demand for smartphones, more consumers would want to buy smartphones.
However, if there is a shortage of the materials needed to produce smartphones, the supply would decrease. In this case, the increase in demand may lead to a price increase, but the decrease in supply may offset some of that increase, resulting in a smaller price increase.
Overall, the net effect on price depends on the specific circumstances of the increase in demand and decrease in supply, and it is important to consider the relative magnitude of these factors.