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Question

Explain through a diagram the effect of a rightward shift of both the demand and supply curve on equilibrium price and quantity.

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Solution

When both demand and supply of a commodity increase (i.e., which both the demand and supply curve of a commodity shifts to the right), the equilibrium quantity will increase but the equilibrium price may or may not be affected. There may be three situations:
(i) When both demand and supply of a commodity increase in equal proportions, the equilibrium price will remain the same. See Fig. (a).
(ii) When both demand and supply increase but the increase in demand is more than the increase in supply, the equilibrium price will rise. See Fig. (b).
(iii) When both demand and supply increase but the increase in demand is less than the increase in supply, the equilibrium price will fall. See Fg. (c).
The following diagrams illustrate these three cases:


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