If supply increases and demand decreases, what generally happens to price?

If supply increases and demand decreases, what generally happens to price?

• A. The price tends to fall
• B. The price tends to rise
• C. The price remains the same
• D. The price becomes more volatile but unpredictable

Answer: (A)

Price is set where how much suppliers want to sell intersects with how much buyers want to buy. If supply increases, the market has more of the good available at each price, shifting the supply curve to the right. If demand decreases, there are fewer buyers at each price, shifting the demand curve to the left. When both shifts happen, they put downward pressure on the price, so the equilibrium price tends to fall. The exact new price depends on how large each shift is, but the direction is downward. The total traded quantity could go up or down depending on which shift dominates, but the price generally decreases.

Price is set where how much suppliers want to sell intersects with how much buyers want to buy. If supply increases, the market has more of the good available at each price, shifting the supply curve to the right. If demand decreases, there are fewer buyers at each price, shifting the demand curve to the left. When both shifts happen, they put downward pressure on the price, so the equilibrium price tends to fall. The exact new price depends on how large each shift is, but the direction is downward. The total traded quantity could go up or down depending on which shift dominates, but the price generally decreases.