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Which chain of events is an expected occurrence in the market and, in addition, occurs in the correct order? (x) Demand decreases, price decreases, quantity supplied decreases
Which chain of events is an expected occurrence in the market and, in addition, occurs in the correct order?
(x) Demand decreases, price decreases, quantity supplied decreases.
(y) Supply increases, price decreases, quantity demanded increases
(z) Supply decreases, price increases, quantity demanded increases.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (x) only
Expert Solution
The answer is B).
When demand decreases, the quantity supplied exceeds the quantity demanded, and price must fall in order to reduce the excess supply. As price falls, the quantity supplied also falls as dictated by the law of supply. Hence (x) is correct.
When supply increases, the quantity supplied exceeds the quantity demanded, and price must fall in order to reduce the excess supply. As price falls, the quantity demanded increases as dictated by the law of demand. Hence (y) is correct.
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