Question

3. Suppose that the supply of Blu Ray players decreases (i.e., shifts to the left). Using our standard supply and demand analysis (i.e., supply is upward sloping and demand is downward sloping, and price adjusts to keep the market in equilibrium), what will happen to the equilibrium price, Pe , and quantity, Qe?

a. Pe will decrease, and Qe will decrease.

b. Pe will decrease, and Qe will increase.

c. Pe will increase, and Qe will increase.

d. Pe will decrease, and Qe will stay the same.

e. Pe will increase, and Qe will decrease.

Answer 1

Answer - Pe will increase, and Qe will decrease.

Reason - When the supply decreases, accompanied by no change in demand, there is a leftward shift of the supply curve.

As supply decreases, a condition of excess demand is created at the old equilibrium level, which causes the equilibrium price to increase and equilibrium quantity to decrease until the new equilibrium level is attained.

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