When demand shifts rightward and supply shifts leftward, which of the following outcomes is certain? A. Equilibrium quantity will increase
B. Equilibrium price will increase
C. Equilibrium quantity may increase, decrease, or remain unchanged
D. Equilibrium price may increase, decrease, or remain unchanged

Question

Read the given passage and answer the following question:

The demand for bananas is not very responsive to a change in price of bananas. When the percentage change in quantity demanded is less than the percentage change in market price, \( e_D = 0.5 \) is estimated to be less than one and the demand for the good is said to be inelastic at that price. Demand for essential goods is often found to be inelastic.

When the percentage change in quantity demanded is more than the percentage change in market price, the demand is said to be highly responsive to changes in market price and the estimated \( e_D > 1 \). The demand for the good is said to be elastic at that price. Demand for luxury goods is seen to be highly responsive to changes in their market prices and \( e_D > 1 \).

When the percentage change in quantity demanded equals the percentage change in its market price, \( e_D = 1 \) is estimated to be equal to one and the demand for the good is said to be unitary-elastic at that price. Note that the demand for certain goods may be elastic, unitary elastic, and inelastic at different prices. In fact, in the next section, elasticity along a linear demand curve is estimated at different prices and shown to vary at each point on a downward-sloping demand curve.

Answer 1

Step 1: Understanding the Concept:
When both curves shift simultaneously, one variable (Price or Quantity) will have a certain direction of change, while the other will be indeterminate depending on the magnitude of the shifts.
Step 2: Detailed Explanation:
- Demand shifts rightward (\( D \uparrow \)): This pushes Price up (\( P \uparrow \)) and Quantity up (\( Q \uparrow \)).
- Supply shifts leftward (\( S \downarrow \)): This pushes Price up (\( P \uparrow \)) and Quantity down (\( Q \downarrow \)).
- Analysis of Price: Both shifts push the price upward. Thus, the Equilibrium Price will certainly increase. (Statement B is true).
- Analysis of Quantity: One shift pushes quantity up while the other pushes it down. The net result depends on which shift is larger. Thus, Quantity is uncertain (may increase, decrease, or stay the same). (Statement C is true).
Step 3: Final Answer:
Statements B and C are correct, making the combination in option (B) the right answer.

Show Hint

The Correct Option is B

Solution and Explanation

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