Question

When supply decreases, Select one:

A. price rises and quantity demanded decreases.
B. price rises and demand increases.
C. price falls with no change in quantity demanded.
D. demand decreases so that price remains the same.
E. price falls and quantity demanded increases.

Answer 1

When supply decreases, the correct answer is that the price rises and quantity demanded decreases, following the law of demand.

Step-by-step explanation:

When supply decreases, what usually follows is an increase in price due to the scarcity of the good or service and a potential decrease in the quantity demanded, as the higher price may discourage consumers from buying the product. This is different from a change in demand, where the entire demand curve shifts. A decrease in supply does not increase demand; it simply means there is less of the good or service available, which could lead to a higher equilibrium price.

Therefore, the correct answer to the student's question is: A. price rises and quantity demanded decreases. This outcome is a reflection of the law of demand, which states there is an inverse relationship between price and quantity demanded, assuming all other factors remain constant.