Final answer:
The equilibrium price falls when demand decreases and supply increases. A price floor set above the equilibrium does not shift the supply or demand curves but can lead to a surplus if it is substantially above the equilibrium price. Therefore, the correct option is D.
Step-by-step explanation:
The event that must cause the equilibrium price to fall is c. demand decreases and supply increases. When demand for a product decreases, it means that consumers are less willing to buy the product at each price point. Conversely, when supply increases, producers are willing to offer more of the product at each price point. This leads to excess supply over demand, putting downward pressure on the equilibrium price. A price floor is a government- or group-imposed price control that sets the minimum price that can be charged for a product or service. According to the provided options, the correct answer is d. neither. A price floor, set above the equilibrium price, does not shift the demand or supply curve itself; instead, it can create excess supply (also known as a surplus) if the price floor is substantially above the equilibrium price, as suppliers are willing to sell more than consumers are willing to buy at that price.
To illustrate these concepts on a demand and supply diagram:
- An increase in supply would be represented by a rightward shift of the supply curve.
- A decrease in demand would be shown as a leftward shift of the demand curve.
- A price floor set substantially above the equilibrium price would lead to a surplus of the product.
- A price floor set slightly above the equilibrium price might not create a significant surplus if the price elasticity of demand is low.