Question

"Suppose that the demand and supply curves have similar steepness. If demand for the good increases slightly and at the same time supply of that good significantly decreases, the equilibrium price of the good will ________ and the equilibrium quantity of the good will ________."

Answer 1

Answer: increase; decrease

Explanation:

Assuming that both curves are of the same steepness, when the demand increases slightly, it will shift slightly to the right which will increase prices. However, should the supply significantly reduce, it would shift the Supply Curve significantly to the left. The new Equilibrium will see a higher price and a lower Quantity.

Explaining it in the real world. If people are now demanding more of a good but at the same time the number of goods reduced, that would cause a price increase because too many people are chasing too few goods. Also, the Supply decreased which translates to a lower Quantity produced.

If however, both supply has decreased by the same rate demand increased, the price would go up but the effect on the quantity of the good will be uncertain.