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

Question

Quizplus · Accepted Answer

If demand increases and supply decreases simultaneously, it will lead to a shortage in the market. This will cause the equilibrium price to rise as consumers will compete to buy the limited quantity available. However, the effect on equilibrium quantity is ambiguous as it will depend on how much the demand and supply curves have shifted.

An Increase in Demand Coupled with a Decrease in Supply