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In which of the following scenarios can we know how price and quantity will change and...

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esther77 | (Level 1) Honors

Posted April 15, 2013 at 2:12 AM via web

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In which of the following scenarios can we know how price and quantity will change and in which can we not tell because they depend on the magnitudes of the shift?

  1. Supply decreases and demand is constant.
  2. Demand decreases and supply is constant.
  3. Supply increases and demand is constant.
  4. Demand increases and supply increases.
  5. Demand increases and supply increases.
  6. Supply increases and demand decreases.
  7. Demand increases and supply decreases.
  8. Demand decrease and supply decreases.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted April 15, 2013 at 2:33 AM (Answer #1)

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There are some scenarios here in which we know what will happen to price and quantity, but there are others in which we cannot know what will happen to one or the other aspect of the market.

In the first three scenarios, we know what will happen.  This is because only one of the variables is changing while the other stays the same.  When one of the variables is constant, we are able to know what the result will be.  For example, we know that Scenario 1 will result in an increase in price and a decrease in quantity. 

For the others, however, we cannot know for sure what will happen because both variables are changing and we do not know how much each is changing.  For example, we know that in Scenario 4 (Scenario 5 is exactly the same in the way you have asked this question) the quantity of the good will increase.  However, we do not know what will happen to the price because we do not know how much demand or supply will change.  For Scenario 6, we know that price will decrease, but we do not know what will happen to quantity.  For Scenario 7, we know that price will rise, but we do not know what will happen to quantity.  For Scenario 8, we know that quantity will decrease, but we do not know what will happen to price.

Thus, when only one variable changes, we can know what happens to price and quantity, but when both change, we can only know what will happen to either price or quantity.

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