Consider the market for capital equipment.Suppose the market price of firms' output decreases.Holding all else constant,what will happen to the equilibrium quantity of capital equipment?

Question

Quizplus · Accepted Answer

When the market price of firms' output decreases, all else constant, the firms will experience a decrease in revenue. This will lead to a reduction in their ability to purchase capital equipment as they aim to cut costs to keep their profits from falling too much. Therefore, the demand for capital equipment will decrease, causing a leftward shift in the demand curve. This will result in a lower equilibrium quantity of capital equipment traded in the market.

Consider the Market for Capital Equipment