In a standard supply-and-demand model, a decrease in demand while holding supply constant results in what changes in equilibrium price and equilibrium quantity?

• A. Equilibrium price decreases and equilibrium quantity decreases
• B. Equilibrium price increases and equilibrium quantity decreases
• C. Equilibrium price decreases and equilibrium quantity increases
• D. Equilibrium price and equilibrium quantity both increase

Answer: (A)

Verified step by step guidance

1. Recall the basic supply and demand model where the equilibrium price and quantity are determined by the intersection of the supply and demand curves.
2. Understand that a decrease in demand means the demand curve shifts to the left, indicating consumers want to buy less of the good at every price.
3. Since supply is held constant, the supply curve does not move, so the new equilibrium is found where the new demand curve intersects the original supply curve.
4. At this new intersection point, the equilibrium price will be lower because suppliers must reduce prices to sell the smaller quantity demanded.
5. Similarly, the equilibrium quantity will decrease because the lower demand means fewer units are bought and sold at the new equilibrium.