Final answer:
Changes in demand and supply affect the equilibrium price and quantity. An increase in demand and decrease in supply will result in a higher price and potentially a lower quantity. An increase in demand and increase in supply will cause an increase in quantity, but the price will depend on the relative magnitude of the shifts.
Step-by-step explanation:
Changes in demand and supply can affect the equilibrium price and quantity in the market. Let's look at the four possibilities:
- Increase in demand and decrease in supply: When demand increases and supply decreases, the equilibrium price will rise and the quantity will depend on the extent of the shifts. The new equilibrium will have a higher price and potentially a lower quantity.
- Increase in demand and increase in supply: If both demand and supply increase, the equilibrium quantity will definitely rise, but the equilibrium price will depend on the relative magnitudes of the shifts. If the increase in demand is greater than the increase in supply, the price will rise. Conversely, if the increase in supply is larger, the price will fall.
- Decrease in demand and decrease in supply: When both demand and supply decrease, the equilibrium quantity will surely decrease, but the equilibrium price will depend on the relative magnitudes of the shifts. If demand decreases more than supply, the price will fall. If supply decreases more than demand, the price will rise.
- Decrease in demand and increase in supply: If demand decreases and supply increases, the equilibrium price will fall, but the effect on the equilibrium quantity will depend on the relative magnitudes of the shifts. If the decrease in demand is greater than the increase in supply, the quantity will decrease. If the increase in supply is larger, the quantity will increase.