A market is in equilibrium with quantity Q* and price P*.?

Question

What happens to P* if there is an increase in supply?

What happens to Q* if there is a decrease in supply and a decrease in demand?

What happens to P* if there is an increase in demand followed by a decrease in supply followed by another increase in demand?

Answer 1

1) price will fall

2) quantity will fall (these are both in the same direction, less is supplied, less is demanded - you don't know what happens to price, but quantity has fallen)

3) 3 increases in price.

Answer 2

You can predict what happens when supply increases: P will fall with increased supply.

With the second scenario, the two effects are offsetting, so impact on Q is uncertain.

With the third, all three impacts move in the same direction. Draw a supply demand graph and observe what happens to P when you shift demand to the right and supply to the left.