Question

Given supply, if Demand decreases, what happens to equilibrium price and output sales?

If the decrease in Demand is larger than increase in Supply, what happens to equilibrium price and output sales?

Answer 1

Question No-1

Answer: Given supply, if Demand decreases, the equilibrium price and output sales decreases

Explanation: As per the information given in the question with the given supply, decreases in demand leads to decrease in equilibrium price and decrease in output sales. it can be explained with the above diagram no-1, where the horizontal axis represents the output and the vertical axis represents the price. Initially the demand curve (D) intersects the supply curve (S) at equilibrium point E, as a result the equilibrium price is OP and equilibrium quantity is OQ. If the demand curve decreases from D to D1 with the given supply curve, the new equilibrium point is E1, where the new equilibrium price is OP1 and new equilibrium quantity is OQ1. The new equilibrium price (OP1) and quantity (OQ1) is less than the earlier equilibrium price (OP) and quantity(OQ). Therefore, with the given supply curve decreases in demand leads to decrease in equilibrium price and decrease in output sales

Question No-2

Answer: if decrease in demand is larger than increase in supply, the equilibrium price and output sales decreases

Explanation: As per the information given in the question, if decrease in demand is larger than increase in supply, then the relative decrease of demand curve is proportionally more than the relative increase in supply curve as a result the equilibrium price decreases and equilibrium output sales also decreases. It can be explained with the above diagram no-2, where the horizontal axis represents the output and the vertical axis represents the price. Initially the demand curve (D) intersects the supply curve (S) at equilibrium point E, as a result the equilibrium price is OP and equilibrium quantity is OQ. The demand curve decreases from D to D1 and the supply curve increases from S to S1. The new demand curve D1 intersects the new supply curve S1 at new equilibrium point E1 where the new equilibrium price is OP1 and new equilibrium quantity is OQ1. The new equilibrium price (OP1) and quantity (OQ1) is less than the earlier equilibrium price (OP) and quantity (OQ).