Factors Affecting Equilibrium Price and Quantity in the Market
What factors can cause a decrease in both equilibrium price and quantity in a market?
a. a decrease in demand for the product with no change in supply.
b. an increase in demand for the product with no change in supply.
c. an increase in demand for the product and a decrease in the supply of the product.
d. an increase in the supply of the product with no change in demand.
Answer:
An observed decrease in equilibrium price and quantity of a product is most likely due to:
a) decrease in demand for the product with no change in supply.
When both the equilibrium price and quantity of a product fall in the market, it indicates a decrease in demand for the product with no change in supply. This can be explained by a leftward shift in the demand curve. As the demand curve shifts down the supply curve, both the equilibrium price and quantity for the product will decrease.
This economic phenomenon is similar to what happens when certain factors, such as changes in consumer preferences, income levels, or the prices of substitute goods, lead to a reduced demand for the product. When demand decreases while the supply remains constant, the equilibrium price and quantity will both decrease.
Understanding how supply and demand shifts affect market equilibrium is a fundamental concept in Economics. It helps economists and businesses analyze and respond to changes in market conditions to make informed decisions.