question archive Demand decreases and supply decreases

Demand decreases and supply decreases

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Demand decreases and supply decreases. How will this affect the equilibrium price and equilibrium quantity, that is, do price and quantity increase or decrease, or are the answers indeterminate because they depend on the magnitudes of the shifts?

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If the demand decreases and supply decreases, the effect on the equilibrium price will depend on the magnitude of the changes.

  • If the decrease in demand is greater than the decrease in supply, the effect will be a decrease in the equilibrium quantity demanded and a decrease in the equilibrium price.
  • If the decrease in demand is equal to the decrease in supply, the equilibrium quantity demanded will decrease and the equilibrium price will remain unchanged.
  • If supply decreases by more than the decrease in demand, the effect will be a decrease in the equilibrium quantity and a rise in the equilibrium price.