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What will cause a decrease in market equilibrium price and an increase in equilibrium...

brooke89's profile pic

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What will cause a decrease in market equilibrium price and an increase in equilibrium quantity?

an increase in supply

an increase in demand

a decrease in supply
 
a decrease in demand
 
 

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pohnpei397's profile pic

Posted (Answer #1)

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Of the options that you have given here, the thing that would cause an increase in equilibrium quantity and a decrease in equilibrium price is an increase in supply.

To see how this works, the best thing to do is use a graph.  First, you draw supply and demand curves to represent the equilibrium price and quantity before the change.  Then, you draw in a new supply curve to show an increase in supply.  An increase in supply is shown by a movement of the curve to the right.

When you move the supply curve to the right (assuming the demand curve does not move) you have a new equilibrium in which the price has gone down while the quantity has increased.

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thetall's profile pic

Posted (Answer #2)

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There are two possibilities that would result in the decrease in market equilibrium price and an increase in equilibrium quantity. One of these is as illustrated by Pohnpei397, an increase in supply while holding demand constant will lead to the increase of equilibrium quantity and a decrease in equilibrium price. The second case is when there is a decrease in demand and the supply is held constant then similarly the market equilibrium price would decrease while the equilibrium quantity would increase.

The two remaining contrary cases of decrease in supply with demand remaining constant and increase in demand with supply remaining constant would result in an increase in market equilibrium price and a decrease in equilibrium quantity.

In summary, an increase in supply or a decrease in demand would support the question scenario while a decrease in supply or an increase in demand would support the opposite of the question scenario.

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