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Question
Macroeconomics
Posted about 1 month ago

Which of the following best describes the sequences of events that lead to a price increase and quantity decrease when supply decreases?

Choose 1 answer:
(A) When supply decreases, there is a surplus because QS<QDQ_{S}<Q_{D} at the old price. Price will adjust upward until the market clears at a new lower quantity.
(B) When supply decreases, there is a shortage because QS>QDQ_{S}>Q_{D} at the old price. Price will adjust upward until the market clears at a new lower quantity.
(c) When supply decreases, there is a shortage because QS<QDQ_{S}<Q_{D} at the old price. Price will adjust upward until the market clears at a new lower quantity.
(D) When supply decreases, there is a surplus because QS>QDQ_{S}>Q_{D} at the old price. Price will adjust upward until the market clears at a new lower quantity.
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Answer from Sia
Posted about 1 month ago
Solution
a
When supply decreases, the quantity supplied (QSQ_S) becomes less than the quantity demanded (QDQ_D) at the old price, creating a shortage
b
Due to the shortage, the price will adjust upward as consumers are willing to pay more to obtain the product
c
The market will clear at a new equilibrium where the quantity supplied equals the quantity demanded, but at a higher price and a lower quantity than before
Answer
(C) When supply decreases, there is a shortage because QS<QDQ_{S}<Q_{D} at the old price. Price will adjust upward until the market clears at a new lower quantity.
Key Concept
Shortage due to decreased supply
Explanation
When supply decreases, the quantity supplied is less than the quantity demanded at the old price, leading to a shortage. This shortage causes the price to increase until the market reaches a new equilibrium with a higher price and lower quantity.

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