Question

PLEASE HELP OR I WONT GRADUATE !!!! 20 points Suppose the demand for air travel decreases (as illustrated in the graph below) A decrease in demand ___ the equilibrium price for air travel and ___ the equilibrium quantity for air travel
- decreases, decreases
- increases, increases
- decreases, increases

Answer 1

Answer:

- decreases, decreases

Explanation:

Initially travel supply and demand have their equilibrium at the intersection between the supply curve (green) and the demand curve (red) where price is P1 and quantity is Q2. When demand decreases, the quantity demanded decreases to Q1. By the law of supply and demand, when demand decreases the price tends to fall. This is what happens on this chart, where decreasing demand leads to decreasing price, now the new price is P2. Thus, the new equilibrium is the result of decreasing demand quantity and price and is established by crossing the supply curve (green) and the new demand curve (purple) at points P2 and Q1.