At a given demand, if the supply of a commodity declines, the equilibrium price level falls.

Question

Quizplus · Accepted Answer

If the supply of a commodity declines, the equilibrium price level actually rises due to the decrease in quantity supplied. This is known as the law of supply and demand, which states that as the price of a good or service goes up, quantity supplied increases and quantity demanded decreases, and vice versa. So, if supply decreases, there is less of the commodity available, and therefore the price needs to be higher in order to still balance out with the demand.

At a Given Demand, If the Supply of a Commodity