An increase in demand and a decrease in supply occur in a market. What happens to the equilibrium price and quantity?
A) The equilibrium price decreases; the change in the equilibrium quantity is uncertain.
B) The equilibrium price decreases; the equilibrium quantity increases.
C) The equilibrium price increases; the change in the equilibrium quantity is uncertain
D) The equilibrium price increases; the equilibrium quantity decreases.

Question

Quizplus · Accepted Answer

An increase in demand and a decrease in supply both lead to an increase in the equilibrium price. However, the effect on equilibrium quantity is uncertain because the increase in demand tends to increase quantity, while the decrease in supply tends to decrease it.

An Increase in Demand and a Decrease in Supply Occur