If supply decreases while demand increases simultaneously, the new equilibrium price is ___________ and the new equilibrium quantity is _________________.
A)lower; lower
B)lower; indeterminate
C)indeterminate; higher
D)higher; indeterminate

Question

Quizplus · Accepted Answer

When supply decreases, it tends to increase the price, and when demand increases, it also tends to increase the price. Therefore, the new equilibrium price will be higher. However, the effect on equilibrium quantity is indeterminate because the decrease in supply tends to reduce quantity, while the increase in demand tends to increase quantity.

If Supply Decreases While Demand Increases Simultaneously, the New Equilibrium