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14 June, 16:52

What happens to the price and quantity of dog treats if the demand for dog treats increases and the supply of dog treats increases?

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  1. 14 June, 17:12
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    Demand Increase = Supply Increase : No change in price, quantity increases

    Demand Increase > Supply Increase: Price increase, quantity increase

    Demand Increase < Supply Increase : Price decrease, quantity increase

    Explanation:

    Markets are at equilibrium where market demand = market supply. And, upward sloping supply curve intersects with downward sloping demand curve.

    If both demand & supply of dog treats increase, the effect on change in price & quantity will depend on their relative magnitude

    If increase in demand = Increase in Supply : Both the curves shift equivalently rightwards. At new equilibrium - there is no change in price, as demand increase is fulfilled by supply increase. The equilibrium quantity increases If increase in demand > Increase in Supply : Demand curve shifts more rightwards than supply curve. This creates excess demand & competition among buyers increase the new equilibrium price. The equilibrium quantity also increases. If increase in demand < Increase in Supply : Supply curve shifts more rightwards than demand curve. This creates excess supply & competition among sellers reduce the new equilibrium price. The new equilibrium quantity increases.
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