If the market demand and supply curves shift as given in Exhibit 4-6, the resulting new equilibrium will show a(n):
A) increase in market price and a decrease in the quantity exchanged.
B) decrease in market price and a decrease in the quantity exchanged.
C) increase in market price and an increase in the quantity exchanged.
D) decrease in market price and an increase in the quantity exchanged.
E) decrease in market price and no change in the quantity exchanged.

Question

Quizplus · Accepted Answer

The shift in demand and supply curves both result in a decrease in equilibrium price, but the effect on quantity exchanged is ambiguous. However, since the supply shift is greater than the demand shift, the quantity exchanged is likely to increase. Therefore, the new equilibrium shows a decrease in market price and an increase in the quantity exchanged.

If the Market Demand and Supply Curves Shift as Given