Question
Asked Sep 29, 2019

What is the impact of a simultaneous increase of supply and a decrease in demand on the market

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Expert Answer

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Step 1

When there is a decrease in demand and increase in supply, there can be three possible scenarios as mentioned below.

1. Decrease in demand = Increase in supply

2.Decrease in demand >Increase in supply

3.Decrease in demand< Increase in supply

All three cases are explained with the help of graphs in the steps that follow.

Step 2

Decrease in Demand = Increase in supply

As can be observed from the graph below, the equilibrium shifts from E to E1. The new equilibrium price P1 is lower than the old equilibrium price P ie the price falls from OP to OP1. The equilibrium quantity remains the same at Q.

1P
E
S
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1P E S

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Step 3

When Decrease in Demand  >  Increase in supply:

New equilibrium is at E1

Equilibr...

S
Ei
S.
DI
X
ן
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S Ei S. DI X ן

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Business

Economics

Supply and Demand

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