Question

Suppose both the demand for and supply of salsa increase (although not necessarily by the same amount). What can we conclude about changes in the price and quantity of salsa?

Answer 1

Answer:

If both demand and supply increase by the same amount, the output level will increase while price will remain same.

If increase in demand is greater than increase in price then price and output both will increase.

If increase in supply is greater than increase in demand, price will decline while output will increase.

Explanation:

The changes in the price and quantity of salsa depending on the degree of change in supply and demand. In case both the variables increase by the same proportion, the price will remain the same while quantity will increase.

In case the increase in demand is more than increase in supply it would cause the price to increase because of excess demand. At the same time, the quantity will increase as well.

In case the increase in supply is more than increase in demand, the price will fall due to excess supply. The output will increase as well.