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Market Equilibrium — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsMarket Equilibrium4 Marks
Question
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 it will result in:

  1. No change in equilibrium price (Case I).
  2. 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.

✓

Answer

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,
  1. Equilibrium price remains constant at OP.
  2. Equilibrium quantity falls from OQ to OQ1.

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 and supplied 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,
  1. Equilibrium price rises from OP to OP1.
  2. Equilibrium quantity falls from OQ to OQ1.

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 OQ. But when "supply decreases and demand also decreases but at a much faster rate" then,
  1. Equilibrium price falls from OP to OP1.
  2. Equilibrium quantity also falls from OQ to OQ1.

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