Suppose that supply decreases and demand increases. What is the MOST likely effect on price and quantity?

Question

Quizplus · Accepted Answer

When supply decreases and demand increases, the price is likely to increase due to the increased demand and reduced supply. However, the effect on quantity is not clear as it depends on the degree of the shift in supply and demand. If the increase in demand is significantly greater than the decrease in supply, then the equilibrium quantity will increase. However, if the decrease in supply is greater than the increase in demand, then the equilibrium quantity will decrease. Thus, price will increase, but quantity may increase, decrease, or stay the same.

Suppose That Supply Decreases and Demand Increases