If the demand increases but supply decreases, then:
A) these two effects cancel each other out and there is no change in the market equilibrium.
B) the price will increase and the quantity will depend on the magnitude of shifts of both demand and supply curves.
C) the price will increase and the quantity will decrease.
D) the price will increase and the quantity will increase.
E) the price will decrease and the quantity will depend on the magnitude of shifts.

Question

Quizplus · Accepted Answer

When demand increases and supply decreases, the price generally increases because the higher demand pushes prices up, while the lower supply means less is available at any price. The effect on quantity depends on which effect is stronger, the increase in demand or the decrease in supply, hence it cannot be determined without more information.

If the Demand Increases but Supply Decreases, Then