Which of the following statements is true?
A)A decrease in demand causes a decrease in equilibrium price;the decrease in price causes supply to decrease.
B)A decrease in demand causes equilibrium price to fall;the decrease in price then results in a decrease in quantity supplied.
C)If both demand and supply increase,there must be an increase in equilibrium price;equilibrium quantity may either increase or decrease.
D)If demand decreases and supply increases one cannot determine if equilibrium price will increase or decrease without knowing which change is greater.

Question

Quizplus · Accepted Answer

When demand decreases, the equilibrium price falls. This decrease in price, in turn, reduces the quantity supplied. This results in a movement along the supply curve. Therefore, option B is the correct statement. Option A is false because a decrease in demand causes a decrease in equilibrium price, which, in turn, causes a decrease in quantity supplied. Option C is not always true because the change in equilibrium price and quantity depends on the magnitude of the changes in demand and supply. Option D is also incorrect because it assumes that the two effects will cancel each other out, but this is not always the case.

Which of the Following Statements Is True