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Which of the following best describes the change in the market for a product when both the demand and supply change simultaneously, leading to an observed constant quantity traded each period, yet an increase in equilibrium price?

A) An increase in demand with a larger increase in supply.
B) A decrease in demand with a larger decrease in supply.
C) A proportional increase in both demand and supply.
D) A proportional decrease in both demand and supply.

User Ekleog
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1 Answer

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Final answer:

The description fits scenario B where a decrease in demand accompanied by a larger decrease in supply leads to an increase in equilibrium price while the quantity traded remains constant.

Step-by-step explanation:

The change in the market for a product when both the demand and supply change simultaneously, leading to an observed constant quantity traded each period, yet an increase in equilibrium price, is best described as B) A decrease in demand with a larger decrease in supply.

In scenario (a), a constant cost situation is described where an increase in demand is met by an equivalent increase in supply, resulting in a stable equilibrium price with increased quantity. However, in scenario (b), an increasing cost industry faces a situation where there is a larger decrease in supply relative to the decrease in demand, which leads to an increase in the equilibrium price while maintaining the quantity traded. Scenario (c) illustrates a decreasing cost industry where a larger increase in supply relative to the increase in demand results in a declining equilibrium price.

User EBH
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