An Increase in Supply and a Decrease in Demand Occur

question 7

Multiple Choice

An increase in supply and a decrease in demand occur in a market. What happens to the equilibrium price and quantity?

• A) The equilibrium price decreases; the change in the equilibrium quantity is uncertain.
• B) The equilibrium price decreases; the equilibrium quantity increases.
• C) The equilibrium price increases; the change in the equilibrium quantity is uncertain.
• D) The equilibrium price increases; the equilibrium quantity decreases.

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Definitions:

Perfect Competition

An industry with so many firms that no one firm has any influence over price, and firms produce an identical product.

Imperfect Competition

All market structures except perfect competition; includes monopoly, oligopoly, and monopolistic competition.

Marginal Revenue Product

The additional revenue generated from employing one additional unit of a resource, considering all other inputs constant.

Marginal Revenue Product

The additional revenue generated by employing one more unit of a factor of production, holding all other factors constant.