a)
The question requires us to draw a graph representing a fall in the
a)
Explanation of Solution
A simultaneous increase in supply and a decrease in
The following graph represents the situation where quantity falls due to the simultaneous change in demand and supply:
Here, an increase in supply shifts the supply curve to the right from S1 to S2, and a fall in demand shifts the demand curve to the left from D1 to D2. As a result, both the equilibrium price and the equilibrium quantity will fall.
The equilibrium quantity will fall because the change in demand is more than the change in supply as shown in the above figure.
Therefore, in the above situation, a simultaneous increase in supply and a fall in demand will:
- Decrease the price
- Decrease the quantity
The following table represents the changes in equilibrium quantity and equilibrium price when demand and supply change:
| Factors | Equilibrium quantity | Equilibrium price |
| Increase in demand | Increase | Increase |
| Decrease in demand | Decrease | Decrease |
| Increase in supply | Increase | Decrease |
| Decrease in supply | Decrease | Increase |
b)
The question requires us to draw a graph representing an increase in the equilibrium quantity, and determine the impact on the equilibrium price.
b)
Explanation of Solution
The following graph represents the situation where quantity increases due to the simultaneous change in demand and supply:
Here, an increase in supply shifts the supply curve to the right from S1 to S2, and a fall in demand shifts the demand curve to the left from D1 to D2. As the result, the equilibrium price will fall, and the equilibrium quantity will increase.
The equilibrium quantity increases because the change in demand is less than the change in supply as shown in the above figure.
Therefore, in the above situation, a simultaneous increase in supply and a fall in demand will:
- Decrease the price
- Increase the quantity
Chapter 7 Solutions
Krugman's Economics For The Ap® Course
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