Question

Suppose a competitive market has a downward-sloping demand curve and a horizontal supply curve. If the supply curve shifts downward, equilibrium price will _____, equilibrium quantity will _____, consumer surplus will _____, and producer surplus will _____.

Answer 1

Answer: (a) Fall

(b) Increase

(c) Increase

(d) Unchanged

Explanation:

Suppose there is a competitive market with a downward sloping demand curve and horizontal supply curve. In a competitive market there are large number of buyers and sellers. So, if there is a downward shift in the supply curve, as a result equilibrium price will fall, equilibrium quantity will increase, consumer surplus now become larger and producer surplus remains the same because of the horizontal supply curve.

Answer 2

Answer:

B

Explanation: