Suppose we observe the following two simultaneous events in the market for beef. First, there is a decrease in the demand for beef due to changes in consumer tastes. And second, there is a reduction in supply due to cattle farmers selling their land to real estate developers. We know with certainty that these two simultaneous events will cause which of the following?
A)no change in the equilibrium quantity and a reduction in the equilibrium price
B)an increase in the equilibrium quantity and in the equilibrium price
C)a decrease in the equilibrium quantity and an indeterminate change in the equilibrium price
D)a decrease in the equilibrium quantity and an increase in the equilibrium price

Question

Quizplus · Accepted Answer

A decrease in demand lowers both equilibrium price and quantity, while a decrease in supply raises price and lowers quantity. The net effect is a decrease in equilibrium quantity, but the change in equilibrium price is indeterminate without knowing the relative magnitudes of the shifts.

Suppose We Observe the Following Two Simultaneous Events in the Market