When supply and demand for a product decrease simultaneously, we
A) can predict that both equilibrium price and quantity will increase.
B) can predict that both equilibrium price and quantity will decrease.
C) cannot predict equilibrium price, but know that equilibrium quantity will decrease.
D) cannot predict the change in either the equilibrium quantity or equilibrium price.

Question

Quizplus · Accepted Answer

When both supply and demand decrease, the effect on equilibrium quantity is clear: it will decrease because there are fewer goods being produced and less demand for them. However, the effect on price is ambiguous without knowing the relative magnitudes of the supply and demand shifts.

When Supply and Demand for a Product Decrease Simultaneously, We