Suppose that demand for a good decreases and,at the same time,supply of the good decreases.What would happen in the market for the good?
A)Equilibrium price would decrease,but the impact on equilibrium quantity would be ambiguous.
B)Equilibrium price would increase,but the impact on equilibrium quantity would be ambiguous.
C)Equilibrium quantity would decrease,but the impact on equilibrium price would be ambiguous.
D)Equilibrium quantity would increase,but the impact on equilibrium price would be ambiguous.

Question

Quizplus · Accepted Answer

If both demand and supply decrease, the equilibrium quantity will definitely decrease, but the impact on equilibrium price will depend on the relative magnitude of the shifts. If the decrease in supply is greater than the decrease in demand, the equilibrium price will increase. If the decrease in demand is greater than the decrease in supply, the equilibrium price will decrease. However, since the question does not specify the size of the shifts, the impact on equilibrium price is ambiguous.

Suppose That Demand for a Good Decreases And,at the Same