When demand falls and supply remains the same, equilibrium price _______ and equilibrium quantity ________.
A) falls, falls
B) rises, rises
C) falls, rises
D) rises, falls
When demand falls and supply remains the same, the equilibrium price and equilibrium quantity will both decrease.
To understand why, let's break it down step by step:
1. Demand refers to the quantity of a product or service that consumers are willing to buy at a given price. When demand falls, it means that consumers are not willing to buy as much of the product at the current prices.
2. Supply, on the other hand, represents the quantity of a product or service that producers are willing to offer at a given price. If supply remains the same, it means that producers are still willing to offer the same quantity of the product as before, regardless of the change in demand.
3. In a market, the point where demand and supply intersect is called the equilibrium. This is where the quantity demanded by consumers matches the quantity supplied by producers, resulting in a stable price and quantity.
4. When demand falls while supply remains the same, there is now an excess supply in the market. Producers are offering more products than consumers are willing to buy, creating a surplus. To get rid of this surplus, sellers will have to lower the price to attract more buyers.
5. As the price decreases, consumers become more willing to purchase the product, and the quantity demanded starts to increase. At the same time, the lower price may discourage some suppliers from producing as much, leading to a decrease in the quantity supplied.
6. Eventually, a new equilibrium is established at a lower price and a lower quantity. This is because the decrease in demand leads to a decrease in both the equilibrium price and the equilibrium quantity.
Therefore, the correct answer is: C) falls, rises.