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Market Equilibrium — Economics STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceEconomicsMarket Equilibrium6 Marks
Question
Market for a good is in equilibrium. There is simultaneous "decrease" both in demand and supply of the good. Explain its effect on market price.
✓

Answer

There are three possibilities:
  1. If the relative (percentage) decrease in demand is greater than the decrease in supply, price will fall.
The price will fall because of excess supply in the market.
  1. If the relative (percentage) decrease in demand is less than the decrease in supply price will rise.
The price will rise because of excess demand in the market.
  1. If the relative (percentage) decrease in demand is equal to the decrease in supply, price will remain unchanged.
The price will remain unchanged because there is neither excess demand nor excess supply in the market.

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