If both supply and demand increase at the same time then what will happen?

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pohnpei397 eNotes educator| Certified Educator

If supply and demand both increase, we know that the equilibrium quantity bought and sold will increase.  However, because we do not know how much supply and demand will rise respectively, we cannot tell whether the price of the good will increase, decrease, or stay the same.

If demand rises without a change in supply, it causes an increase in quantity and an increase in prices.  If supply rises without a change in demand, it causes an increase in quantity and a decrease in prices.  Since increases in demand and supply separately both cause quantities to rise, an increase in both at the same time will also have to cause quantities to rise. 

Things are not so simple when it comes to price.  Increases in supply and demand pull the price in different directions.  If demand increases more than supply does, we get an increase in price.  If supply rises more than demand, we get a decrease in price.  If they rise the same amount, the price stays the same.

In general, then, we can say that when supply and demand rise simultaneously, we get an increase in equilibrium quantity and an unknown change in price.  Please follow the link below for an interactive answer to this question.