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

When supply and demand both increase, the quantity of goods sold will also increase. If supply and demand both increase at about the same rate, the price of a product will remain steady. If demand increases more than supply, prices will rise. If supply increases more than demand, prices will fall.

Expert Answers

An illustration of the letter 'A' in a speech bubbles

If both supply and demand increase at the same time, we’ll get a new market equilibrium point. In a free market, demand, or the willingness of customers to purchase a particular product, depends on their income, all factors remaining constant. On the other hand, supply, or the willingness of producers/retailers to avail goods to the market, depends on the cost of production, assuming other factors remain constant.

Where the supply and demand curves meet is called an equilibrium point. That’s the optimal price consumers are willing to pay for a product and the optimal price suppliers are willing to supply a product. The equilibrium point also shows the optimal quantity that can be supplied by producers to maximize profit. It also shows the optimal quantity of goods a consumer is willing to buy to satisfy their needs.

Consumers can increase their demand for a particular product if their income rises, assuming all factors remain constant. As a result, the demand curve will shift to the right to show an increase in quantity demanded. At the same time, the cost of production may have decreased, encouraging producers to manufacture and supply more items to maximize earnings. This leads to an outward shift in the supply curve. Under the same price, there will be a new equilibrium quantity and point in the short run.

In the long run, equilibrium price may rise due to inflation and quantity may reduce, leading to the creation of a new equilibrium point.

Last Updated by eNotes Editorial on
An illustration of the letter 'A' in a speech bubbles

Supply refers to the amount of a product that a producer is willing to make. Demand refers to the amount of a product that consumers are willing to purchase. Shifts in supply and demand affect both the quantity of goods sold and the price at which they are sold.

When supply and demand simultaneously increase, the quantity of goods sold naturally goes up. Consumers are willing to purchase more products, and producers are willing to make more products, so the market expands and more products are available and sold.

Price variations, however, are a bit more tricky when supply and demand rise at the same time. If the two rise fairly equally, the price of goods will remain about the same. If, however, the demand increases more than the supply (even though they are both going up), producers know that they can charge more for their products. The demand still outstrips the supply. If, on the other hand, supply increases more than demand (with both still going up), there will be excess goods on the market and prices will drop.

Let's look at an example. A producer creates and markets a particular computer. Predicting that demand will be heavy during the back-to-school season, the company increases production, which also increases the supply of computers. Demand does indeed rise, as students are looking to purchase new computers before the start of the school year.

In this situation, more computers will be sold overall, but three things might happen with regard to price. If the supply and demand for the computer rise equality, the company will keep the price about the same. There is an equilibrium, and it doesn't want to disturb that by raising the price. If the demand for the computer soars as happy students recommend it to others, the company will raise the price, for students want more computers than are being produced and the computers on the market are, therefore, more valuable. If, however, students fail to demand as many computers as the company has made, the company will drop its price to get rid of its excess stock.

Last Updated by eNotes Editorial on
An illustration of the letter 'A' in a speech bubbles

Supply and demand go hand in hand and are very intrinsically linked. Usually, assuming everything else remains the same, a rise in one causes a rise in the other. If, however, they both rise at the same time, the equilibrium quantity sold will rise in direct relation to that increase. Because they are both increasing together, there may be no corresponding rise in price (if you have a higher supply at the same price but people are demanding more at that price, there is no reason to increase the price, and doing so may in fact inhibit sales).

If supply were to increase without an increase in demand, price would go down and quantity sold would increase. If there is an increase in demand and no increase in supply, the price and quantity sold would both increase. As it were, quantity sold would increase, but price would likely remain the same.

Approved by eNotes Editorial Team
An illustration of the letter 'A' in a speech bubbles

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.

Approved by eNotes Editorial Team
Soaring plane image

We’ll help your grades soar

Start your 48-hour free trial and unlock all the summaries, Q&A, and analyses you need to get better grades now.

  • 30,000+ book summaries
  • 20% study tools discount
  • Ad-free content
  • PDF downloads
  • 300,000+ answers
  • 5-star customer support
Start your 48-Hour Free Trial