A decrease in supply while holding demand constant results in a(n) ?Blank______ ?in equilibrium price, and a(n) ?Blank______ ?in equilibrium quantity.Multiple choice question.increase; decreasedecrease; decreasedecrease; increaseincrease; increase
The correct answer and explanation is:
The correct answer is:
increase; decrease
Explanation:
In economics, the law of supply and demand helps explain how changes in supply and demand affect the equilibrium price and quantity in a market. The equilibrium price is the price at which the quantity of a good supplied by producers equals the quantity demanded by consumers. The equilibrium quantity is the amount of the good bought and sold at this price.
Decrease in Supply:
When the supply of a good decreases, it means that producers are offering less of the product at each price level. This shift in the supply curve to the left (a decrease in supply) occurs due to factors such as higher production costs, fewer suppliers in the market, or changes in technology that reduce production efficiency.
Since demand is held constant, consumers are still willing to buy the same amount of the good at each price. However, because there is less of the good available, consumers are now competing to purchase it. This competition increases the price that consumers are willing to pay, leading to a higher equilibrium price.
The decrease in supply reduces the overall availability of the good, so fewer units are exchanged in the market. This leads to a decrease in equilibrium quantity, as fewer goods are sold due to the higher price and reduced availability.
Summary:
- Equilibrium Price: The price increases because there is less of the good available, and consumers are willing to pay more for it.
- Equilibrium Quantity: The quantity decreases because fewer units of the good are being supplied and sold at the higher price.
This phenomenon is consistent with the basic principles of supply and demand: a decrease in supply, with constant demand, results in a higher price and a lower quantity.