If supply decreases and demand increases: A) the market-clearing price definitely rises, and the equilibrium quantity falls

Marketing Jan 11, 2021

If supply decreases and demand increases:

A) the market-clearing price definitely rises, and the equilibrium quantity falls.

B) the market-clearing price definitely rises, and the equilibrium quantity is indeterminate.

C) the market-clearing price definitely falls, and the effect on the equilibrium quantity is indeterminate.

D) the effect on the market-clearing price is indeterminate, and the equilibrium quantity definitely falls.

Expert Solution

The answer is B).

Equilibrium price will increase if there is less supply or higher demand. Hence, when supply decreases and demand simultaneously increases, the equilibrium price will increase definitely. Equilibrium quantity will increase if demand increases more than the decline in supply, and fall otherwise, thus the change in quantity is indeterminate.

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote