Question

If the supply of a product decreases and the demand for that product simultaneously increases, then equilibrium: price must rise, but equilibrium quantity may rise, fall, or remain unchanged. price must rise and equilibrium quantity must fall. price and equilibrium quantity must both increase. price and equilibrium quantity must both decline.

Answer 1

Answer:

The correct answer is: price must rise, but equilibrium quantity may rise, fall, or remain unchanged.

Explanation:

If the supply of a product decreases the supply curve will shift to the left. At the same time, if there is an increase in demand, the demand curve will move to the right. This simultaneous shift in both demand and supply will lead to an increase in the price of the product.  

The change in the quantity demanded will depend on the extent of change in demand and supply.

If both changes by the same proportion the equilibrium quantity will remain the same. If demand increases more than the decrease in supply the equilibrium quantity will increase. If the demand increases less than decrease in supply, the equilibrium quantity will fall.