Consider a market that is in equilibrium. If the market experiences both a decrease in demand and a decrease in supply:
A) the equilibrium price and quantity will fall.
B) the equilibrium quantity will fall, but the change in the equilibrium price cannot be predicted.
C) the equilibrium price will fall, but the change in the equilibrium quantity cannot be predicted.
D) the equilibrium price and quantity will rise.

Question

Quizplus · Accepted Answer

When both demand and supply decrease, it is certain that the equilibrium quantity will fall because there will be less of the good or service being bought and sold. However, the effect on price is ambiguous without knowing the relative magnitudes of the shifts in demand and supply. If demand decreases more than supply, the price could fall. If supply decreases more than demand, the price could rise.

Consider a Market That Is in Equilibrium