Question

What can cause the market equilibrium price and equilibrium quantity of bagels – a normal good – to decrease?

1) Increase in the cost of production
2) Decrease in the demand for bagels
3) Increase in the supply of bagels
4) Decrease in the price of bagels

Answer 1

A decrease in the demand for bagels or an increase in the supply of bagels can both cause the market equilibrium price and equilibrium quantity of bagels to decrease.

Step-by-step explanation:

To understand what can cause the market equilibrium price and equilibrium quantity of bagels to decrease, we need to consider changes in supply and demand. Here are the outcomes for each scenario provided:

1. An increase in the cost of production would typically lead to a decrease in supply, which would increase the equilibrium price and decrease the equilibrium quantity, holding demand constant.
2. A decrease in the demand for bagels, a normal good, would cause both the equilibrium price and equilibrium quantity to decrease, as the demand curve shifts to the left.
3. An increase in the supply of bagels would lead to a lower equilibrium price and a higher equilibrium quantity, as a rightward shift in the supply curve causes a movement down along the demand curve.
4. A decrease in the price of bagels is a result of changes in the market (such as increased supply or decreased demand), not a cause, so it cannot be considered as an independent factor affecting equilibrium price and quantity.

Therefore, the factors that can cause both the market equilibrium price and equilibrium quantity to decrease for bagels are a decrease in demand for bagels or an increase in supply of bagels.