Which of the. following statements is /are true ? 1. If increase in demand and supply are of equal magnitude, the price will remain unchanged, but the equilibrium quantity will increase. 2. If increase in demand is of greater magnitude than increase in su

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Q: 94 (CDS-II/2014)

Which of the. following statements is /are true ?
1. If increase in demand and supply are of equal magnitude, the price will remain unchanged, but the equilibrium quantity will increase.
2. If increase in demand is of greater magnitude than increase in supply, both equilibrium price and equili- brium quantity will increase.
3. If increase in supply is of greater . magnitude than increase in demand, equilibrium price will fall byt equilibrium quantity will increase.
Select the correct answer using the code given below:

question_subject: 

Economics

question_exam: 

CDS-II

stats: 

0,76,120,51,39,30,76

keywords: 

{'equilibrium quantity': [0, 0, 0, 1], 'equilibrium price': [0, 0, 0, 1], 'byt equilibrium quantity': [0, 0, 0, 1], 'demand': [0, 0, 0, 3], 'greater magnitude': [0, 0, 0, 1], 'equal magnitude': [0, 0, 0, 1], 'increase': [3, 1, 10, 35], 'magnitude': [0, 0, 3, 10], 'supply': [3, 1, 0, 7]}

The correct answer is option 4, which means all three statements are true.

Statement 1 says that if the increase in demand and supply are of equal magnitude, the price will remain unchanged. This is because the increase in demand and supply will cancel out each other, resulting in no change in price. However, the equilibrium quantity will increase as both demand and supply increase.

Statement 2 states that if the increase in demand is of greater magnitude than the increase in supply, both equilibrium price and equilibrium quantity will increase. This is because the increase in demand creates more pressure on the market, leading to a higher price and quantity at equilibrium.

Statement 3 mentions that if the increase in supply is of greater magnitude than the increase in demand, the equilibrium price will fall, but the equilibrium quantity will increase. This is because the increase in supply will create a surplus, which in turn puts downward pressure on prices. However, the increase in supply also allows for a greater quantity of goods to be available at equilibrium.

Therefore, all three statements provide valid explanations of the relationship between demand, supply, price, and equilibrium quantity.

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