How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market? That is, do price and quantity rise, fall, or remain unchanged, or are the answers indeterminate because they depend on the magnitudes of the shifts?

a. Supply decreases, and demand is constant.

b. Demand decreases, and supply is constant.

c. Supply increases and demand is constant.

d. Demand increases, and supply increases.

e. Demand increases, and supply is constant.

f. Supply increases, and demand decreases.

g. Demand increases, and supply decreases.

h. Demand decreases, and supply decreases.

The effect of a decrease in supply and no change in demand can be explained using the diagram given below:

The supply curve shifts backward while there is no change in the demand curve.

The price increases from P to P1, and quantity falls from Q to Q1.

The effect of a decrease in demand and no change in supply can be explained using the diagram given below:

The demand curve shifts backward while there is no change in the supply curve. The price decreases from P to P1, and quantity falls from Q to Q1.

The effect of an increase in supply and no change in demand can be explained using the diagram given below:

The supply curve shifts forward while there is no change in the demand curve. The price decreases from P to P1, and quantity increases from Q to Q1.

The effect of an increase in both demand and supply can be explained using the diagram given below:

The demand and supply curve shift forward. The relative size of shift or magnitude of shift will decide the effect of changes on the price. The shift in the supply curve (demand curve) can be more than, equal to, or less than the shift in the demand curve (or supply curve).

• If $Sto{S}_1<Dto{D}_1,then{P}_1>P$
• If $Sto{S}_2=Dto{D}_1,thenP=P_2$
• If $Sto{S}_3=Dto{D}_1,then{P}_3<P$

Thus, the effect on price is uncertain depending on the magnitude of shifts; however, the quantity will increase ($Q<Q_1<Q_2<Q_3$).

The effect of an increase in demand and no change in supply can be explained using the diagram given below:

The demand curve shifts forward while there is no change in the supply curve. The price increases from P to P1, and quantity increases from Q to Q1.

The effect of an increase in supply and a decrease in demand can be explained using the diagram given below:

The demand curve will shift backward, and the supply curve will shift forward. The relative size of shift or magnitude of shift will decide the effect of changes on the price. The shift in the demand (supply curve) can be more than, equal to, or less

than the shift in the supply curve (or demand curve).

• If$D$to$D_1<S$to $S_1$, then $Q_1>Q$
• If $D$to $D_2=S$to $S_1,thenQ=Q_2$
• If $D$to $D_3>Sto{S}_1,then{Q}_3<Q_2$

Thus, the effect on quantity is uncertain; however, the price will decrease ($P>P_1>P_2>P_3$).

The effect of an increase in demand and a decrease in supply can be explained using the diagram given below:

The demand curve will shift forward, and the supply curve will shift backward. The relative size of shift or magnitude of shift will decide the effect of changes on the price. The shift in the supply curve (demand curve) can be more than, equal to, or less than the shift in the demand curve (or supply curve).

• If $Sto{S}_1<Dto{D}_1,then{Q}_1>Q$
• If $Sto{S}_2=Dto{D}_1,thenQ=Q_2$
• If $Sto{S}_3>Dto{D}_1,then{Q}_3<Q$

Thus, the effect on quantity is uncertain; however, the price will increase ($P<P_1<P_2<P_3$).

The effect of a decrease in both demand-supply can be explained using the diagram given below:

The demand curve and the supply curve will shift backward. The relative size of shift or magnitude of shift will decide the effect of changes on the price. The shift in the supply curve (demand curve) can be more than, equal to, or less than the shift in the demand curve (or supply curve).

• If $Sto{S}_1<Dto{D}_1,then{P}_1<P$
• If $Sto{S}_2=Dto{D}_1,thenP=P_2$
• If $Sto{S}_3>Dto{D}_2,then{P}_3>P$

Thus, the effect on the price is uncertain; however, the quantity will decrease ($Q>Q_1>Q_2>Q_3$).