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Assume a competitive market is in equilibrium
Assume a competitive market is in equilibrium. Then, demand increases slower than supply decreases. As a result, what happens to the equilibrium price and quantity?
Price
A. will increase.
B. will decrease.
C. will remain the same.
D. may increase, decrease, or remain the same.
Quantity
A. will increase.
B. will decrease.
C. will remain the same.
D. may increase, decrease, or remain the same.
Expert Solution
Ans: Price will increase and demand will decrease.
When demand increases, demand curve will shift to right. And when supply decreases, supply curve will shift to left. Since the magnitude of decrease in supply is more than the increase in demand, the new equilibrium will be established at a higher price and lower quantity.
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