Question

Suppose that demand decreases and supply decreases. What would you expect to occur in the market for the good? a. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. d. Both equilibrium price and equilibrium quantity would increase.

Answer 1

Answer:

c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.

Explanation:

When the demand decreases along with the decrease in supply, obviously the equilibrium quantity will also decrease, to match the level of supply and demand.

But the price cannot be fairly estimated as because the supply is decreased the prices shall increase for equilibrium but as the demand has also decreased the prices shall decrease in order to match the equilibrium.

Thus, the price is ambiguous but definitely the quantity shall stand decreased for equilibrium.