Suppose there is an increase in both the supply and demand for personal computers. In the market for personal computers, we would expect the

Question

a. equilibrium quantity to rise and the equilibrium price to remain constant.
b. equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.
c. change in the equilibrium quantity to be ambiguous and the equilibrium price to rise.
d. equilibrium quantity to rise and the equilibrium price to fall.
e. equilibrium quantity to rise and the equilibrium price to rise.

Answer 1

In the scenario where there is an increase in both the supply and demand for personal computers, we can analyze the effects on equilibrium quantity and price:

1. Supply increases: This typically puts downward pressure on prices and increases the equilibrium quantity.
2. Demand increases: This typically puts upward pressure on prices and increases the equilibrium quantity.

When both supply and demand increase:

• The equilibrium quantity will definitely rise because both the increase in supply and the increase in demand contribute to a higher quantity being sold in the market.
• The effect on equilibrium price, however, is ambiguous. The price could rise, fall, or stay the same, depending on the magnitude of the shifts in supply and demand. If demand increases more than supply, prices will rise. If supply increases more than demand, prices will fall. If they increase by the same amount, the price could remain constant.

Given this analysis, the correct answer is b. equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.