Consider the following statements regarding the effect of a leftward shift in the demand curve with a fixed number of firms: 1. There is excess supply at the initial equilibrium price. 2. Firms will lower their prices to sell their desired quantity. 3. The new equilibrium will have a lower price and lower quantity. Which of the statements given above is/are correct?

Correct Option The correct option is 1, 2 and 3. Explanation Market equilibrium occurs where the quantity demanded equals the quantity supplied. A leftward shift in the demand curve represents a decrease in demand, meaning consumers are willing to purchase less quantity at every given price level. The supply curve remains unchanged when the number of firms is fixed. Statement-wise Analysis - Statement 1 is Correct: When the demand curve shifts to the left, at the initial equilibrium price ($P_0$), the quantity demanded falls ($Q_1$) while the quantity supplied remains at the original level ($Q_0$). Since $Q_0 > Q_1$, there is an excess supply in the market. - Statement 2 is Correct: Due to the excess supply, firms accumulate unsold inventory. To clear this stock and sell their desired quantity, firms respond to market pressure by lowering their prices. - Statement 3 is Correct: As the price decreases, the quantity demanded increases (movement along the new demand curve) and the quantity supplied decreases (movement along the supply curve). This adjustment continues until a new equilibrium is reached. This new intersection point corresponds to a lower price and a lower quantity than the initial equilibrium. Key Takeaway Key Takeaway: A decrease in demand (leftward shift), with supply held constant, results in excess supply at the original price, leading to a fall in both the equilibrium price and the equilibrium quantity.

Consider the following statements regarding the effect of a leftward shift in… - NCERT Class 12 Economics MCQ

NCERT Class 12 Economics — Chapter 2: Market Equilibrium

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Consider the following statements regarding the effect of a leftward shift in the demand curve with a fixed number of firms:

There is excess supply at the initial equilibrium price.
Firms will lower their prices to sell their desired quantity.
The new equilibrium will have a lower price and lower quantity.

Which of the statements given above is/are correct?

NCERT textbook question

From NCERT Introductory Microeconomics · Page 77

Options

A1, 2 and 3
B1 and 2 only
C2 only
D2 and 3 only

Did you get this right?

Solution

Correct Option

The correct option is 1, 2 and 3.

Explanation

Market equilibrium occurs where the quantity demanded equals the quantity supplied. A leftward shift in the demand curve represents a decrease in demand, meaning consumers are willing to purchase less quantity at every given price level. The supply curve remains unchanged when the number of firms is fixed.

Statement-wise Analysis

Statement 1 is Correct: When the demand curve shifts to the left, at the initial equilibrium price ($P_0$), the quantity demanded falls ($Q_1$) while the quantity supplied remains at the original level ($Q_0$). Since $Q_0 > Q_1$, there is an excess supply in the market.
Statement 2 is Correct: Due to the excess supply, firms accumulate unsold inventory. To clear this stock and sell their desired quantity, firms respond to market pressure by lowering their prices.
Statement 3 is Correct: As the price decreases, the quantity demanded increases (movement along the new demand curve) and the quantity supplied decreases (movement along the supply curve). This adjustment continues until a new equilibrium is reached. This new intersection point corresponds to a lower price and a lower quantity than the initial equilibrium.

Key Takeaway

Key Takeaway: A decrease in demand (leftward shift), with supply held constant, results in excess supply at the original price, leading to a fall in both the equilibrium price and the equilibrium quantity.

Your note

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What is the primary consequence of a price ceiling accompanied by rationing?

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In a perfectly competitive market, if the market price is above the equilibrium price, there will be:

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