A market is in equilibrium with quantity Q* and price P*.?
What happens to Q* if there is a decrease in supply and a decrease in demand?
What happens to P* if there is an increase in demand followed by a decrease in supply followed by another increase in demand?
Answer:
1) price will fall
2) quantity will fall (these are both in the same direction, less is supplied, less is demanded - you don't know what happens to price, but quantity has fallen)
3) 3 increases in price.
You can predict what happens when supply increases: P will fall with increased supply.
With the second scenario, the two effects are offsetting, so impact on Q is uncertain.
With the third, all three impacts move in the same direction. Draw a supply demand graph and observe what happens to P when you shift demand to the right and supply to the left.
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