Question

Suppose the market is in equilibrium at Po and Qo. If the shift of the demand curve to left is smaller than the shift of the supply curves to left. The new equilibrium of price will be _____ Po, and the new equilibrium output will be ____Qo.

Select one:

a. less than; greater than.

b. greater than; less than

c. less than; less than.

d. greater than; greater than

Answer 1

b. greater than; less than

Explanation: When both he demand and the supply curve shift to the left, this means there is a fall in demand as well as a fall in supply. However, when the  the shift of the demand curve to left is smaller than the shift of the supply curves to left, it means the fall in supply is greater than the fall in demand. So, the equilibrium quantity would fall and the equilibrium price would rise because of the higher scarcity.