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If both demand and supply change simultaneously, the effect on either price or quantity will be .

Question

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Solution

The effect on price or quantity when both demand and supply change simultaneously can be ambiguous and depends on the magnitude and direction of the changes.

Here are the possible scenarios:

  1. If demand and supply both increase, quantity will definitely increase. However, the effect on price is uncertain. If the increase in demand is greater than the increase in supply, price will rise. If the increase in supply is greater than the increase in demand, price will fall.

  2. If demand and supply both decrease, quantity will definitely decrease. The effect on price is again uncertain. If the decrease in demand is greater than the decrease in supply, price will fall. If the decrease in supply is greater than the decrease in demand, price will rise.

  3. If demand increases and supply decreases, price will definitely rise. However, the effect on quantity is uncertain. If the increase in demand is greater than the decrease in supply, quantity will rise. If the decrease in supply is greater than the increase in demand, quantity will fall.

  4. If demand decreases and supply increases, price will definitely fall. The effect on quantity is uncertain. If the decrease in demand is greater than the increase in supply, quantity will fall. If the increase in supply is greater than the decrease in demand, quantity will rise.

So, the effect on price or quantity when both demand and supply change simultaneously is dependent on the relative changes in demand and supply.

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