Suppose in a financial crisis, major automakers reduce their production of autos while consumers reduce their demand for autos. We can conclude with certainty that in the market of autos,
A)both the equilibrium price and equilibrium quantity will increase.
B)the equilibrium price will decrease and the equilibrium quantity will increase.
C)the equilibrium price will decrease, but the equilibrium quantity will increase, decrease or remain unchanged.
D)the equilibrium quantity will decrease, but the equilibrium price will increase, decrease or remain unchanged.
E)both the equilibrium price and equilibrium quantity will decrease.

Question

Quizplus · Accepted Answer

When both supply and demand decrease, the equilibrium quantity will certainly decrease. However, the effect on equilibrium price is uncertain as it depends on the relative magnitudes of the shifts in supply and demand.

Suppose in a Financial Crisis, Major Automakers Reduce Their Production