Question

The demand for a good decreases by 10 percent and the supply of the good decreases by 8 percent. Does the price of the good rise or​ fall? Why?

Answer 1

price decreases

A decrease in demand leads to a leftward shift of the demand curve. As a result equilibrium price and quantity decreases

A decrease in supply leads to a leftward shift of the demand curve. As a result, equilibrium price increases while equilibrium quantity decreases

Taking these two effects together, because the fall in demand is greater (10%) than the fall in supply(8%), there would be a decrease in equilibrium quantity and equilibrium price

Step-by-step explanation: