Consider a market that is in equilibrium. If the market experiences both a decrease in demand and an increase in supply:
A) the equilibrium price and quantity will rise.
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 fall.

Question

Quizplus · Accepted Answer

When there is a decrease in demand and an increase in supply, the equilibrium price will definitely fall as there is excess supply in the market. However, the change in the equilibrium quantity cannot be predicted as it will depend on the magnitude of the decrease in demand and increase in supply. It is possible that the equilibrium quantity also falls if the decrease in demand is larger than the increase in supply or remains the same if they are equal in magnitude.

Consider a Market That Is in Equilibrium