A decrease in demand and an increase in supply results in a(n)
A) decrease in equilibrium price and an ambiguous effect on equilibrium quantity
B) increase in equilibrium price and an ambiguous effect on equilibrium quantity
C) ambiguous effect on equilibrium price and an increase in equilibrium quantity
D) ambiguous effect on equilibrium price and an decrease in equilibrium quantity
E) increase in equilibrium price and a decrease in equilibrium quantity

Question

Quizplus · Accepted Answer

When demand decreases, it tends to lower both equilibrium price and quantity. When supply increases, it tends to lower equilibrium price but increase equilibrium quantity. The combined effect is a definite decrease in equilibrium price, but the effect on equilibrium quantity is ambiguous as it depends on the relative magnitudes of the shifts in demand and supply.

A Decrease in Demand and an Increase in Supply Results