What would be an effect on equilibrium price and equilibrium quan… - Vidyadip

Question

What would be an effect on equilibrium price and equilibrium quantity if demand and supply both fall at the same rate?###Market for a good is in equilibrium. There is simultaneous "decrease" both in demand and supply but there is no change in market price. Explain with the help of a schedule how is it possible.

✓

Answer

When demand and supply both decrease at the same rate, equilibrium price remains constant and equilibrium quantity falls. It can be shown with the help of the following diagram.

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 OQ. But as given in the examination problem, "demand and supply both decrease at the same rate”, then,

Equilibrium price remains constant Beat OP.
quilibrium quantity falls from OQ to OQ₁.

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