Which of the following statement/statements are true?
Statement 1: When decrease in demand is less than increase in supply, leftward shift in demand will be less than rightward shift in supply.
Statement 2: When decrease in demand is less than increase in supply, quantity falls.
Answer & explanation
Correct answer: option 3
The correct answer is option 3: Statement 1 is true and Statement 2 is false.
Statement 1: When decrease in demand is less than increase in supply, leftward shift in demand will be less than rightward shift in supply.
- This statement is true. The magnitude of the shift in a curve represents the change in quantity at each price. If the decrease in demand is less than the increase in supply, the leftward shift of the demand curve will be smaller than the rightward shift of the supply curve.
Statement 2: When decrease in demand is less than increase in supply, quantity falls.
- Let's consider the combined effect:
- A decrease in demand (leftward shift) will decrease quantity.
- An increase in supply (rightward shift) will increase quantity.
- Since the increase in supply is greater than the decrease in demand, the net effect on quantity will be an increase.
- Therefore, the statement "quantity falls" is false. Quantity will increase.