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. (B) When supply decreases, the price increases automatically to make $Q_{S}=Q_{D}$ (c) 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 surplus 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. (B) When supply decreases, the price increases automatically to make $Q_{S}=Q_{D}$ (c) 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 surplus 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 price, leading to a shortage. ‖ ‖ b ⋮ Shortage and Price Adjustment: Due to the shortage ($Q_S < Q_D$), the price will adjust upward. As the price increases, the quantity demanded will decrease, and the quantity supplied will increase until the market reaches a new equilibrium at a higher price and a lower quantity. ‖ ‖ c ⋮ New Equilibrium: The market clears at this new equilibrium where $Q_S = Q_D$ at a higher price and a lower quantity than before the supply decrease. ‖ ∻Answer∻ ⚹ (C) When supply decreases, there is a shortage because $Q_{S}

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