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What would be an effect on equilibrium price and equilibrium quantity when demand and supply both shift leftward? Or There is simultaneously decrease in demand and supply of a commodity, when will it result in: (i) No change in equilibrium price (Case I) (ii) A fall in equilibrium price. (Case III). Or Market for a good is in equilibrium. There is simultaneous "decrease" in both demand and supply of the goods. Explain its effect on market price. |
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Answer» Solution :there are following three cases: CASE I: When demand and supply both decrease at the same rate The given DIAGRAM price is measured on vertical axis and quantity demanded and supplied is measured on horizontal axis. Initially, the equilibrium price is OP and equilibrium quantity is OQ. But when "supply decreases and demand also decreases but at a same rate" then, (i) Equilibrium price REMAINS CONSTANT at OP, and (ii) Equilibrium quantity falls from OQ to`OQ_(1)` Case II: When demand decreases, supply also decrease but at a much faster rate In the given diagram price is measured on vertical axis and quantity demanded andsupplied is measured on horizontal axis. Initially, the equilibrium price is OP and equilibrium quantity is OQ. But when "demand decreases and supply also decreases but at a much faster rate" then, (i) Equilibrium price rises from OP to `OP_(1)`, and (ii) Equilibrium quantity falls from OQ to `OQ_(1)`. Case III: When supply decreases, demand also decreases but at a must faster rate In the given diagram price is measured on vertical axis and quantity demanded and supplied is measured on horizontal axis. Initially, the equilibrium price is OP and equilibrium quantity is 0Q. But when "supply decreases and demand also decreases but at a much faster rate" then, (i) Equilibrium price fails from OP to `OP_(1)` : and (ii) Equilibrium quantity also falls from OQ to `OQ_(1)` . ` (##FM_M_ECO_XII_P1_C12_E02_051_S01.png" width="80%"> ` (##FM_M_ECO_XII_P1_C12_E02_051_S02.png" width="80%"> ` (##FM_M_ECO_XII_P1_C12_E02_051_S03.png" width="80%"> |
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