When both supply and demand shift to the left,the equilibrium
A) price always rises.
B) price always falls.
C) quantity always falls.
D) quantity always rises.
E) quantity is indeterminate.

Question

Quizplus · Accepted Answer

When both supply and demand shift to the left, it becomes clear that both the quantity supplied and demanded have decreased, leading to a shortage. As a result, the equilibrium quantity will surely fall. However, the effect of the shift on the price depends on the relative size of the shifts in supply and demand. If the shift in the demand curve is more prominent than the shift in the supply curve, the price will rise, and if the shift in the supply curve is greater than the shift in the demand curve, the price will fall. However, if both shifts are of equal magnitude, the price will remain unchanged (as in the case of a simultaneous 10% reduction in both demand and supply). Regardless, since both the quantity supplied and demanded have decreased as a result of the shift, the equilibrium quantity will decrease.

When Both Supply and Demand Shift to the Left,the Equilibrium