Decrease in price what will happen to equilibrium quantity and price?

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

You must have made a mistake in your question ... I'm assuming you mean either a decrease in supply or in demand.

A decrease in demand would lead to a lower equilibirum price and a lower equilbrium quantity.  You can see this for yourself on a graph -- it's depicted by a move of the demand curve to the left.

A decrease in supply would lead to a higher eqilibrium price and a lower equilibrium quantity.  This is shown by a movement of the supply curve to the left.

A decrease in price just can't happen (economically speaking) unless there is a change in supply or demand and that's why I'm assuming you mis-typed.

krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

Posted on

When we talk of market equilibrium economics it does not make sense to speak either of changing either price or quantity at will. The market equilibrium is a result of interaction of two different influences. These are:

  1. Quantities of goods the consumers are willing to buy at different prices. This is represented by demand curves.
  2. Quantities of goods the firms are willing to sell at different prices. This is represented by supply curves.

Market equilibrium occurs at point where supply and demand curves intersect. This is the point at which the price and quantity on supply curve exactly matches that on demand curve. This is the market equilibrium price and quantity.

It is not possible for equilibrium, price, quantity, or both to change without shift in either one or both of the demand and supply curve.

If decrease in price referred in the question above refers to willingness of firms to offer same quantities at lower prices, then it will tend to reduce market equilibrium price and increase market equilibrium quantity.

If decrease in price referred in the question above refers to reduction in willingness of consumers to pay the same price as represented bu original demand curve, then it will tend to reduce both market equilibrium price and quantity.

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