Question

if the market is initially equilibrium but then the supply increases while demand decreases the equilibrium price _____ and the equilibrium quanity ____

A) decreases ; increases

B) decreases; decreases

C)decreases; ambiguous/indetermine

D) ambiguous/indetermine ; increases

Answer 1

C) decreases; indetermine

Since when any of the element (supply or demand) varies we can determine both equilibrium quantity and equilibrium price.But when both elements changes in the opposite direction we can predict the equilibrium price but during this situation the equilibrium quantity cannot be determined. Equilibrium quantity depends on the relativte change in size of both quantity. When the demand decreases at initial price causes excess supply of the product at intial cost making fall in equilibrium price.Since when the demand decreases the supplier will tend to sell the product at low cost to the consumers.

When both the demand and supply decreases or increases, ie; when the elements changes in the same direction the quantity can be determined but at that condition the price cannot be determined.otherwords price at equilibrium is ambiguous.There are different conditions like this.

Thus when the market is in initially equilibrium condition but then the supply increases while the demand decreases the equilibrium price decreases and the equilibrium quantity is undetermineable.