Suppose the market is initially in equilibrium. If the demand curve shifts leftward by 4 units at every price, what is the most likely effect on the new equilibrium price and quantity?

• A. Equilibrium price will increase, but equilibrium quantity will decrease.
• B. Both equilibrium price and quantity will decrease.
• C. Both equilibrium price and quantity will increase.
• D. Equilibrium price will decrease, but equilibrium quantity will increase.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the initial market equilibrium where quantity demanded equals quantity supplied at the equilibrium price.
2. Step 2: Recognize that a leftward shift in the demand curve by 4 units at every price means that, for any given price, consumers now want to buy 4 fewer units than before. This represents a decrease in demand.
3. Step 3: Recall that a decrease in demand shifts the demand curve to the left, which typically leads to a lower equilibrium price and a lower equilibrium quantity because suppliers must reduce prices to sell the smaller quantity demanded.
4. Step 4: Use the supply and demand framework to analyze the new intersection point: the new demand curve intersects the supply curve at a lower price and quantity compared to the original equilibrium.
5. Step 5: Conclude that both the equilibrium price and equilibrium quantity will decrease as a result of the leftward shift in the demand curve.