Suppose Both Demand and Supply Decrease

question 207

Multiple Choice

Suppose both demand and supply decrease. How do the equilibrium price and quantity change?

• A) Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
• B) Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.
• C) Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.
• D) Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

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Definitions:

Reinvestment

The process of using dividends, interest, or any other form of income generated by an investment to purchase additional shares or units of that investment.

IRR Method

The process of estimating the rate of return on an investment by setting the net present value of all cash flows to zero, to assess its profitability.

MIRR

Modified Internal Rate of Return, a financial measure used to assess the attractiveness of investments by accounting for the cost of borrowing and reinvestment rates.

Cash Flows

The aggregate sum of money entering and exiting a business, notably affecting its cash flow.