Multiple Choice
In a market where the demand curve is Q_d = 100 - 2P and the supply curve is Q_s = 20 + 3P, what is the equilibrium quantity? (Please answer in millions per year)
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3. The Market Forces of Supply and Demand
Market Equilibrium
Multiple Choice
A decrease in the supply of loanable funds will cause which of the following effects in the market for loanable funds?
A
A decrease in both the equilibrium interest rate and the quantity of loanable funds exchanged
B
An increase in the equilibrium interest rate and a decrease in the quantity of loanable funds exchanged
C
A decrease in the equilibrium interest rate and an increase in the quantity of loanable funds exchanged
D
No change in the equilibrium interest rate, but an increase in the quantity of loanable funds exchanged
Verified step by step guidance1
Understand the market for loanable funds: it is where borrowers demand funds and lenders supply funds, with the interest rate acting as the price of loanable funds.
Recognize that a decrease in the supply of loanable funds means the supply curve shifts to the left, indicating fewer funds are available at each interest rate.
Analyze the effect of this leftward shift on the equilibrium: with less supply, the equilibrium quantity of loanable funds exchanged will decrease.
Since the supply curve shifts left and demand remains unchanged, the new equilibrium interest rate will be higher because borrowers compete for fewer available funds.
Conclude that a decrease in the supply of loanable funds leads to an increase in the equilibrium interest rate and a decrease in the quantity of loanable funds exchanged.
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