question archive If supply decreases and demand also increases, we can conclude that in the new equilibrium: a
If supply decreases and demand also increases, we can conclude that in the new equilibrium: a
Subject:MarketingPrice:2.88 Bought3
If supply decreases and demand also increases, we can conclude that in the new equilibrium:
a. quantity must increase but market price may fall, stay the same, or even increase.
b. price must fall but market quantity may fall, stay the same, or even increase.
c. price must increase but market quantity may fall, stay the same, or even increase.
d. quantity must decrease but market price may fall, stay the same, or even increase.
e. both market quantity and market price must increase.
f. market quantity must increase and market price must decrease.
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The correct answer is c. price must increase but market quantity may fall, stay the same, or even increase.
A decrease in supply causes an increase in prices and so does an increase in demand. So, prices must increase. The effect on quantity will depend on the proportional changes in demand and supply. If the proportional increase in demand is higher, we would expect the quantity to go up. The opposite happens if the proportional decrease in supply is higher. No change is seen if the proportional changes are the same.
