Suppose we observe the following two simultaneous events in the market for fish. First, there is a decrease in the demand for fish due to changes in consumer tastes. And second, there is a reduction in seafood supply due to oil spills in the oceans. We know with certainty that these two simultaneous events will cause which of the following?
A) no change in the equilibrium quantity and a reduction in the equilibrium price
B) an increase in the equilibrium quantity and in the equilibrium price
C) a decrease in the equilibrium quantity and an indeterminate change in the equilibrium price
D) a decrease in the equilibrium quantity and an increase in the equilibrium price

Question

Quizplus · Accepted Answer

A decrease in demand would typically lead to a lower equilibrium price and quantity, while a decrease in supply would lead to a higher price and lower quantity. When both occur simultaneously, the quantity will definitely decrease (as both shifts suggest a decrease in quantity), but the price effect is indeterminate without knowing the relative magnitudes of the shifts in demand and supply.

Suppose We Observe the Following Two Simultaneous Events in the Market