Sia
Question
Macroeconomics
Posted 6 months ago
What happens to the price and quantity of dog treats if the demand for dog treats increases and the supply of dog treats increases?
Choose 1 answer:
(A) Price increases; quantity decreases.
(B) We do not know what happens to price; quantity increases.
(C) Price decreases; quantity decreases.
(D) Price decreases; quantity increases.
(E) Price decreases; quantity demanded doesn't change.
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Answer from Sia
Posted 6 months ago
Solution
a
Demand and Supply Increase: When both demand and supply increase, the effect on price is determined by the relative magnitude of the shifts in demand and supply curves
b
Quantity Outcome: Regardless of the relative shifts, if both demand and supply increase, the quantity of the good sold will increase. This is because at any price, more of the good is both demanded and supplied
c
Price Outcome: If the increase in demand is greater than the increase in supply, the price will increase. If the increase in supply is greater than the increase in demand, the price will decrease. If the increases are the same, the price will stay the same. However, without information on the relative magnitudes of the shifts, we cannot determine the exact effect on price
Answer
B. We do not know what happens to price; quantity increases.
Key Concept
Simultaneous shifts in demand and supply
Explanation
When both demand and supply for a good increase, the quantity of the good sold will increase. The effect on price depends on the relative magnitude of the shifts in the demand and supply curves, which is not specified in the question.
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