If both the supply of and the demand for a good decrease simultaneously, but the decrease in demand is greater than the decrease in supply, then the equilibrium price _____ and equilibrium output _____.

Question

Quizplus · Accepted Answer

When both supply and demand decrease simultaneously, the equilibrium price and output will decrease. However, if the decrease in demand is greater than the decrease in supply, then the market will experience a larger decrease in demand relative to supply. This results in a surplus of the good, causing firms to lower their prices in order to sell their excess inventory. As a result, the equilibrium price falls, and equilibrium output also falls as firms reduce their production levels to match the lower demand.

If Both the Supply of and the Demand for a Good