Suppose there is an increase in both the supply and demand for personal computers. Furthermore, suppose the supply of personal computers increases more than 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 rise.
b. change in the equilibrium quantity to be ambiguous and the equilibrium price to fall.
c. equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.
d. equilibrium quantity to rise and the equilibrium price to fall.

Answer 1

In this scenario, we have both an increase in supply and an increase in demand for personal computers. However, we know that the increase in supply is more significant than the increase in demand.

1. Increase in Supply: This typically leads to a lower equilibrium price and a higher equilibrium quantity.
2. Increase in Demand: This usually leads to a higher equilibrium price and a higher equilibrium quantity.

Since the increase in supply is greater than the increase in demand, the overall effect on equilibrium price is that it will likely fall, as the supply increase dominates the effect of the demand increase.

However, the equilibrium quantity will certainly rise because both supply and demand are increasing.

Given this analysis, the best answer is:

c. equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.

This reflects the certainty of an increase in equilibrium quantity while leaving the exact change in equilibrium price uncertain due to competing factors from supply and demand changes.