Which of the following statement/statements are true?
Statement 1: When decrease in demand is more than increase in supply, leftward shift in demand will be less than rightward shift in supply.
Statement 2: When decrease in demand is more than increase in supply, quantity falls.
Answer & explanation
Correct answer: option 4
The correct answer is Option 4: Statement 2 is true and Statement 1 is false.
Statement 1: False
- If decrease in demand is more than the increase in supply, the leftward shift of the demand curve will be greater than the rightward shift of the supply curve.
- The statement incorrectly says that the leftward shift in demand will be less than the rightward shift in supply, which contradicts the given condition.
Statement 2: True
- When demand decreases more than supply increases, there is a greater reduction in demand than the increase in available supply.
- This causes both equilibrium price and equilibrium quantity to fall because supply exceeds demand.
- Thus, the quantity falls, making this statement correct.