Market for a good is in equilibrium. There is simultaneous increase both in demand and supply of the good. Explain its effect on market price.

The simultaneous increase in demand and supply affects the equilibrium price and output depending on the magnitude of the change in demand and supply. The simultaneous increase in the demand and supply can be bifurcated into the following three conditions.
i. When Demand and Supply Increase in the Same Proportion

According to the diagram, E₁ is the initial equilibrium with equilibrium price P₁ and equilibrium output q₁.
Now let us suppose the demand increases to D₂D₂ and the supply increases to S₂S₂ by the same proportion to that of demand. The new demand curve and the new supply curve intersect at point E₂, which is the new equilibrium point. At the new equilibrium point, new equilibrium output is q₂, while the equilibrium price remains the same at P₁. Thus, an increase in the demand and the supply by same proportion leaves the equilibrium price unchanged.
ii. When Demand Increases More than Increase in Supply

The initial demand curve and the initial supply curve intersect each other at point E₁, with initial equilibrium price P₁ and initial equilibrium output Q₁.

Now let us suppose that demand increases and thereby demand curve shifts to D₂. Simultaneously, the supply also rises and the supply curve shift to S₂. However, the increase in the supply is less than the increase in the demand. The new supply curve and the new demand curve intersect each other at point E₂, with higher equilibrium price P₂ and higher equilibrium output Q₂. Thus, when the demand increases more than the increase in supply, the equilibrium price rises.
iii. When Demand Increases but Lesser than the Increase in Supply

Let the initial equilibrium be at point E₁, with the equilibrium price P₁ and the equilibrium output Q₁. Now, suppose that the demand increases to D₂ and supply increases to S₂. However, the increase in supply is more than that of the increase in demand. The new demand curve D₂ and the new supply curve S₂ intersect at point E₂, with lower equilibrium price P₂. Thus, when the increases in demand is less than the increase in supply, the equilibrium price falls.