Final answer:
The statement about combined decreases in demand and supply leading to a decrease in equilibrium quantity but an ambiguous effect on equilibrium price is true. The extent to which price changes depend on the relative magnitude of the shifts in the supply and demand curves. A price floor does not shift demand or supply but rather imposes a lower limit on prices.
Step-by-step explanation:
From the information provided and basic economic principles, the statement is true. When both demand and supply decrease, the equilibrium quantity will indeed fall. This happens because with lower demand, buyers want less of the good, and with lower supply, producers are offering less of the good. Thus, there will certainly be a decrease in the quantity of goods traded in the market. However, the change in the equilibrium price is ambiguous.
This uncertainty arises because the two forces have opposite effects on price: decreased demand puts downward pressure on price while decreased supply puts upward pressure. Without knowing the magnitude of the shifts in supply and demand, we cannot determine whether the price will rise or fall, hence the ambiguity.
To illustrate, let's consider Figure 3.19, which shows the combined effect of decreased demand and decreased supply. The shift leftward of the demand curve represents a decrease in demand, and the shift leftward of the supply curve represents a decrease in supply. Where the new curves intersect gives us the new equilibrium point.
The equilibrium quantity at this intersection is lower than before, confirming the reduction in quantity. The equilibrium price could go either way depending on which curve has shifted more. If demand has decreased significantly more than supply, the price might fall. If supply has decreased significantly more than demand, the price might rise.
Regarding the question about a price floor, the correct answer is d. neither. A price floor is a government-imposed limit on how low a price can be charged for a product. It does not directly shift demand or supply but can create excess supply (surplus) if set above the equilibrium price.