If we observe a decrease in the equilibrium quantity of good A, we know that

Question

Quizplus · Accepted Answer

According to the law of demand, a decrease in quantity demanded is related to an increase in price. Therefore, if there is a decrease in the equilibrium quantity of good A, it can only be caused by a decrease in demand, a decrease in supply, or both. Option A is incorrect because an increase in supply would result in an increase in equilibrium quantity. Option C is incorrect because an increase in demand would result in an increase in equilibrium quantity. Option D is incorrect because a decrease in demand and an increase in supply have opposite effects on equilibrium quantity. Option E is incorrect because we cannot determine changes in price based solely on a change in equilibrium quantity.

If We Observe a Decrease in the Equilibrium Quantity of Good