Question
What will be the impact on market price and quantity exchanged when:
(i) there is rightward shift in demand curve;
(ii) the demand curve is perfectly elastic and supply curve shifts out (rightward);
(iii) both the demand and supply curves decrease in the same proportion.
Solution
(i) Equilibrium (market) price and quantity will increase presuming supply to be constant.
(ii) It will lead to decrease in price and increase in quantity transacted.
(iii) Equilibrium price will not be affected but quantity supplied and demanded will decrease in the same ratio.
