Suppose both supply and demand decrease.What effect will this have on price?

Question

Quizplus · Accepted Answer

When both supply and demand decrease, it is not possible to predict the exact direction of the price change. It depends on the magnitude of the decrease in both supply and demand. If the decrease in demand is greater than the decrease in supply, then price will fall. Conversely, if the decrease in supply is greater than the decrease in demand, then price will rise. However, if the magnitudes of the decrease in supply and demand are roughly equivalent, then the price may remain the same. Therefore, the correct answer is (C) - It may rise or fall.

Suppose Both Supply and Demand Decrease