Question

What happens to the price and quantity of dog treats if the demand for dog treats increases and the supply of dog treats increases?

Answer 1

Answer:

Demand Increase = Supply Increase : No change in price, quantity increases

Demand Increase > Supply Increase: Price increase, quantity increase

Demand Increase < Supply Increase : Price decrease, quantity increase

Explanation:

Markets are at equilibrium where market demand = market supply. And, upward sloping supply curve intersects with downward sloping demand curve.

If both demand & supply of dog treats increase, the effect on change in price & quantity will depend on their relative magnitude

• If increase in demand = Increase in Supply : Both the curves shift equivalently rightwards. At new equilibrium -  there is no change in price, as demand increase is fulfilled by supply increase. The equilibrium quantity increases
• If increase in demand > Increase in Supply : Demand curve shifts more rightwards than supply curve. This creates excess demand & competition among buyers increase the new equilibrium price. The equilibrium quantity also increases.
• If increase in demand < Increase in Supply : Supply curve shifts more rightwards than demand curve. This creates excess supply & competition among sellers reduce the new equilibrium price. The new equilibrium quantity increases.