When demand decreases and the (upward sloping) supply curve remains in the same position,
Part 2
A.
price rises and equilibrium quantity rises.
B.
price rises and equilibrium quantity falls.
C.
price falls and equilibrium quantity falls.
D.
price falls and equilibrium quantity rises.
C. price falls and equilibrium quantity falls.
When demand decreases and the upward-sloping supply curve remains in the same position, the equilibrium price and quantity will change. To determine how it changes, we need to evaluate the impact of the decrease in demand.
Answer: C. Price falls and equilibrium quantity falls.
Explanation:
1. Decrease in Demand: When demand decreases, the demand curve shifts to the left. This means that consumers are willing and able to purchase fewer units at any given price.
2. Unchanged Supply: If the supply curve remains in the same position, meaning the quantity supplied at each price level remains constant, then there will be no change in the supply curve.
3. Equilibrium Point: The equilibrium point is where the demand and supply curves intersect, determining the market price and quantity. Since only the demand curve shifts, the new equilibrium point will be determined by the intersection of the unchanged supply curve and the new demand curve.
4. Price Change: The new equilibrium point will be at a lower price level due to the decrease in demand. This is because when demand decreases, consumers are willing to pay less for the product.
5. Quantity Change: The new equilibrium quantity will also decrease because, with lower demand, producers will supply fewer units to match the reduced consumer demand.
Therefore, the correct answer is C. Price falls and equilibrium quantity falls.