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 $Q_{S}Q_{D}$ at the old price. Price will adjust upward until the market clears at a new lower quantity. (C) When supply decreases, the price increases automatically to make $Q_{S}=Q_{D}$ (D) When supply decreases, there is a shortage because $Q_{S}Q_{D}$ at the old price. Price will adjust upward until the market clears at a new lower quantity. (E) When supply decreases, there is a shortage because $Q_{S}

Question

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 $Q_{S}Q_{D}$ at the old price. Price will adjust upward until the market clears at a new lower quantity. (C) When supply decreases, the price increases automatically to make $Q_{S}=Q_{D}$ (D) When supply decreases, there is a shortage because $Q_{S}>Q_{D}$ at the old price. Price will adjust upward until the market clears at a new lower quantity. (E) When supply decreases, there is a shortage because $Q_{S}

Accepted Answer

∻Solution∻ ‖ a ⋮ Supply Decrease: When supply decreases, the supply curve shifts to the left. This creates a situation where the quantity supplied ($Q_S$) is less than the quantity demanded ($Q_D$) at the old equilibrium price. ‖ ‖ b ⋮ Shortage Creation: This mismatch between $Q_S$ and $Q_D$ at the old price creates a shortage in the market. ‖ ‖ c ⋮ Price Adjustment: Due to the shortage, the price will adjust upward. As the price increases, the quantity demanded will decrease, and the quantity supplied will increase until a new equilibrium is reached. ‖ ‖ d ⋮ New Equilibrium: The market will clear at a new higher price and a lower quantity compared to the original equilibrium. ‖ ∻Answer∻ ⚹ (E) When supply decreases, there is a shortage because $Q_{S}

Sia