What effect will a decrease in demand and an increase in supply have on equilibrium price?

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SSC CGL Previous Paper 58 (Held On: 12 June 2019 Shift 1)
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  1. Equilibrium price will fall
  2. Equilibrium price will be constant
  3. Equilibrium price will rise
  4. Sometimes price will rise and sometimes it will fall

Answer (Detailed Solution Below)

Option 1 : Equilibrium price will fall
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Detailed Solution

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The correct answer is option 1, i.e. Equilibrium price will fall.

Key Points

  • A decrease in demand and an increase in supply will cause a fall in Equilibrium price.
  • Equilibrium is a state of no change and clearly, at the equilibrium price, both buyers and sellers are in a state of no change.
  • Technically, at the equilibrium price, the quantity demanded by the buyers is equal to the quantity supplied by the sellers.
  • The equilibrium price is determined by the market forces of demand and supply in a perfectively competitive market. 
  • Market Demand is the sum total of demand for a commodity by all the buyers in the market whereas Market Supply is the sum total of supplies of a commodity by all the firms in the market.
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