Question
Download Solution PDFWhat effect will a decrease in demand and an increase in supply have on equilibrium price?
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe 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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