If supply increases and demand decreases
A) the market clearing price definitely rises, and the equilibrium quantity definitely falls.
B) the market clearing price definitely rises, and the effect on the equilibrium quantity is indeterminate.
C) the market clearing price definitely falls, and the effect on the equilibrium quantity is indeterminate.
D) the effect on the market clearing price is indeterminate, and the equilibrium quantity definitely falls.

Question

Quizplus · Accepted Answer

When supply increases and demand decreases, the market clearing price is likely to fall but the effect on equilibrium quantity is indeterminate. This is because the increase in supply pushes the price down, but the decrease in demand reduces the quantity demanded, so it is unclear how much the quantity supplied will adjust to meet the new lower demand.

If Supply Increases and Demand Decreases