Use the following to answer questions 1-3:
1. Refer to the above diagram. If demand changes from D1 to D2 at the same time supply changes from S2 to S1, equilibrium price will:
A) rise and equilibrium quantity will fall. C) rise, as will equilibrium quantity.
B) fall and equilibrium quantity will rise. D) fall, as will equilibrium quantity.
2. Refer to the above diagram. If demand changes from D2 to D1 at the same time supply changes from S1 to S2, equilibrium price will:
A) rise and equilibrium quantity will fall. C) rise, as will equilibrium quantity.
B) fall and equilibrium quantity will rise. D) fall, as will equilibrium quantity.
3. Refer to the above diagram. Which of the following will increase equilibrium price and reduce equilibrium quantity?
A) a shift of supply from S1 to S2, with demand remaining at D1.
B) a shift of supply from S2 to S1, with demand remaining at D2.
C) simultaneous shifts of demand from D1 to D2 and supply from S1 to S2.
D) simultaneous shifts of demand from D2 to D1 and supply from S2 to S1.
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b, d, a
1. The correct answer is B) fall and equilibrium quantity will rise. When demand changes from D1 to D2 and supply changes from S2 to S1, the equilibrium price will fall and the equilibrium quantity will rise.
2. The correct answer is A) rise and equilibrium quantity will fall. When demand changes from D2 to D1 and supply changes from S1 to S2, the equilibrium price will rise and the equilibrium quantity will fall.
3. The correct answer is D) simultaneous shifts of demand from D2 to D1 and supply from S2 to S1. This combination will increase equilibrium price and reduce equilibrium quantity.
To answer these questions, we need to analyze the changes in both demand and supply and determine how they affect the equilibrium price and quantity.
1. If demand changes from D1 to D2 and supply changes from S2 to S1:
- When demand increases from D1 to D2, it means that consumers want to buy more of the product at each price level. This leads to an increase in the equilibrium quantity.
- When supply decreases from S2 to S1, it means that producers are willing to supply fewer units of the product at each price level. This leads to a decrease in the equilibrium quantity.
Therefore, with an increase in demand and a decrease in supply, the equilibrium price will rise (option C) and the equilibrium quantity will increase.
2. If demand changes from D2 to D1 and supply changes from S1 to S2:
- When demand decreases from D2 to D1, it means that consumers want to buy less of the product at each price level. This leads to a decrease in the equilibrium quantity.
- When supply increases from S1 to S2, it means that producers are willing to supply more units of the product at each price level. This leads to an increase in the equilibrium quantity.
Therefore, with a decrease in demand and an increase in supply, the equilibrium price will fall (option D) and the equilibrium quantity will decrease.
3. To increase the equilibrium price and reduce the equilibrium quantity, we need to analyze the effects of different shifts in both demand and supply:
- Option A: A shift of supply from S1 to S2, with demand remaining at D1, means that producers are willing to supply more units of the product at each price level, but consumers still want to buy the same amount. This leads to an increase in supply and a decrease in the equilibrium quantity. However, the demand remains the same, so it does not affect the equilibrium price.
- Option B: A shift of supply from S2 to S1, with demand remaining at D2, means that producers are willing to supply fewer units of the product at each price level, but consumers still want to buy the same amount. This leads to a decrease in supply and a decrease in the equilibrium quantity. However, the demand remains the same, so it does not affect the equilibrium price.
- Option C: Simultaneous shifts of demand from D1 to D2 and supply from S1 to S2 mean that consumers want to buy more of the product while producers are willing to supply more units. This leads to an increase in both demand and supply, resulting in an increase in the equilibrium quantity. However, the effect on the equilibrium price depends on the magnitude of the shifts. Without additional information, we cannot determine whether the equilibrium price will increase or decrease.
- Option D: Simultaneous shifts of demand from D2 to D1 and supply from S2 to S1 mean that consumers want to buy less of the product while producers are willing to supply fewer units. This leads to a decrease in both demand and supply, resulting in a decrease in the equilibrium quantity. However, the effect on the equilibrium price depends on the magnitude of the shifts. Without additional information, we cannot determine whether the equilibrium price will increase or decrease.
Therefore, none of the given options will definitively increase the equilibrium price and reduce the equilibrium quantity.