When both supply and demand decrease, the equilibrium price ________ and the equilibrium quantity ________.

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Question restatement: When both supply and demand decrease, the equilibrium price ________ and the equilibrium quantity ________.

Option a: 'is indeterminate; increases' This would imply that despite both curves shifting left, the price could go either up or down, but the quantity would not increase. Since both curves shifting left typically reduce quantity, an increase in price accompanied by an indeterminate price direction is not supported by standard results. Hence this option is inconsistent with the general effect on quantity and doubtful about price direction.

Option b: 'is indeterminate; decreases' This option asserts that price direction cannot be determined from the shifts alone, while quantity definitively falls. Indeed, when both curves shift left, the quantity traded definitely declines because there are fewer trades at any given price. The price outcome depends on the relative magnitudes of the shifts in supply and demand, so it can rise, fall, or stay the same; thus price is indeterminate. This aligns with common supply-demand analysis: double leftward shift leads to a lower quantity, but price is ambiguous.

Option c: 'decreases; is indeterminate' This would claim that the price falls in response to the leftward shifts, but the quantity effect is indeterminate. While it’s possible for price to fall if the demand decrease dominates, the quantity effect for both curves shifting left is not indeterminate; it is clear that quantity decreases. Therefore this option misstates the quantity outcome.

Option d: 'increases; increases' This asserts both price and quantity rise. Since both curves shifting left reduce quantity, claiming an increase in quantity is incorrect. Additionally, price direction is not guaranteed to rise; thus this option is clearly inconsistent with the simultaneous leftward shifts.

Summary: The only aspect we can be confident about is that the equilibrium quantity decreases when both supply and demand decrease, because there are fewer transactions overall. The equilibrium price, however, depends on which curve shifts more, so its direction is not determined without magnitudes. Therefore, the statement that price is indeterminate and quantity decreases best captures the standard outcome in this scenario.

MCD2020 - T1 - 2025 Homework Quiz 2- Market Forces of Supply and Demand

When both supply and demand decrease, the equilibrium price and the equilibrium quantity .

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MCD2020 - T1 - 2025 Homework Quiz 2- Market Forces of Supply and Demand

When both supply and demand decrease, the equilibrium price ________ and the equilibrium quantity ________.

View Explanation

Log in for full answers

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