Suppose that demand increases AND supply decreases. What would happen in the market for the good?

Question

Quizplus · Accepted Answer

When demand increases and supply decreases, it creates a situation of scarcity where buyers are willing to buy at a higher price, but suppliers have fewer quantities to sell. This will lead to an increase in the equilibrium price as buyers are competing to purchase limited quantities of the good. However, the change in equilibrium quantity is ambiguous, as it will depend on the magnitude of the shifts in demand and supply. If the increase in demand is larger than the decrease in supply, then the equilibrium quantity will increase. Conversely, if the decrease in supply is larger than the increase in demand, then the equilibrium quantity will decrease.

Suppose That Demand Increases AND Supply Decreases