Question
A decrease in supply will have what effect on equilibrium price and quantity?
a. Both price and quantity will decrease.
b. Price will increase; quantity will decrease.
c. Both price and quantity will increase.
d. Price will decrease; quantity will increase.
a. Both price and quantity will decrease.
b. Price will increase; quantity will decrease.
c. Both price and quantity will increase.
d. Price will decrease; quantity will increase.
Ask by O'Quinn Mitchell. in the United States
Mar 21,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
A decrease in supply will cause the price to increase and the quantity to decrease.
Solution
- Define equilibrium as the point where the supply and demand curves intersect.
- A decrease in supply shifts the supply curve to the left.
- With demand remaining constant, a leftward shift of the supply curve results in a higher equilibrium price and a lower equilibrium quantity.
- Thus, the effect is that the price increases while the quantity decreases.
The correct answer is
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Simplify this solution The Deep Dive
When there is a decrease in supply, it means that fewer goods are available in the market. When supply decreases, the reduced availability typically leads to an increase in the equilibrium price as consumers are willing to pay more for the limited products. Conversely, the quantity traded in the market will decrease because there are fewer items available for sale. Hence, the correct answer is b: Price will increase; quantity will decrease.
In real-world scenarios, consider how natural disasters impact supply chains. If a hurricane disrupts the production of food items, not only might prices skyrocket due to scarcity, but consumers may also find it challenging to purchase those products, resulting in a lower quantity available in stores. This dynamic illustrates the principles of supply and demand in action!
