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

Question

Quizplus · Accepted Answer

If both demand and supply shift, the equilibrium price will increase, but the change in equilibrium quantity will depend on the magnitudes of the shifts. If the increase in demand is larger than the decrease in supply, then the equilibrium quantity will also rise. If the decrease in supply is larger than the increase in demand, then the equilibrium quantity will fall. Therefore, we can predict the direction of change in the equilibrium price, but not the direction of change in the equilibrium quantity.

Consider a Market That Is in Equilibrium