Multiple Choice
When a recession occurs, how are oligopolistic firms most likely to respond in terms of pricing and output decisions?
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3. The Market Forces of Supply and Demand
Market Equilibrium
Multiple Choice
The equilibrium price in a market must decrease when demand:
A
increases while supply remains unchanged
B
and supply both increase by the same amount
C
remains constant while supply increases
D
decreases while supply remains unchanged
Verified step by step guidance1
Understand the concept of market equilibrium, where the quantity demanded equals the quantity supplied at the equilibrium price.
Recall that the demand curve slopes downward (higher price leads to lower quantity demanded) and the supply curve slopes upward (higher price leads to higher quantity supplied).
Analyze the effect of a decrease in demand while supply remains unchanged: a leftward shift of the demand curve reduces the quantity demanded at every price, creating excess supply at the original price.
Recognize that to restore equilibrium, the price must fall to increase quantity demanded and decrease quantity supplied until the new equilibrium is reached.
Conclude that when demand decreases and supply remains unchanged, the equilibrium price must decrease.
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