Changes in both demand and supply of a commodity may not affect its equilibrium price. Explain


When both demand and supply increase in the same proportion, then the equilibrium price does not get affected.

Suppose E1 is the initial equilibrium point, with equilibrium price OP1 and equilibrium output Oq1. Now, let us suppose that market demand increases and as a result the demand curve shifts parallely rightwards to D2D2. Simultaneously, supply also increases in the same proportion to that of the demand and the supply curve shifts to the new supply curve S2S2. The new demand curve and the new supply curve intersect at point E2, which is the new equilibrium. Observe, at the new equilibrium the output has increased from Oq1 to Oq2, while the price has remained unchanged at OP1.

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