A decrease in demand, while holding supply constant, results in which of the following outcomes in a competitive market?

• A. A lower equilibrium price and a lower equilibrium quantity
• B. No change in equilibrium price or quantity
• C. A higher equilibrium price and a higher equilibrium quantity
• D. A higher equilibrium price and a lower equilibrium quantity

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the basic concepts of demand and supply in a competitive market. Demand represents the quantity of a good consumers are willing and able to buy at different prices, while supply represents the quantity producers are willing and able to sell at different prices.
2. Step 2: Recognize that the equilibrium price and quantity are determined at the intersection of the demand and supply curves, where quantity demanded equals quantity supplied.
3. Step 3: Analyze the effect of a decrease in demand while holding supply constant. A decrease in demand means the demand curve shifts to the left, indicating consumers want to buy less of the good at every price.
4. Step 4: Determine the new equilibrium by finding the intersection of the unchanged supply curve and the shifted demand curve. Since demand has decreased, the new intersection point will be at a lower price and a lower quantity compared to the original equilibrium.
5. Step 5: Conclude that a decrease in demand, with supply constant, leads to a lower equilibrium price and a lower equilibrium quantity in the market.