The correct option is It may increase, decrease, or remain unchanged..
Explanation
Market equilibrium is determined by the intersection of the demand and supply curves. Shifts in these curves disrupt the initial equilibrium, establishing a new price and quantity. The final outcome depends on the direction and relative magnitude of the shifts involved.
Analysis of Simultaneous Shifts
The question involves two simultaneous changes in the market:
- Rightward Shift in Supply Curve: This represents an increase in supply. Ceteris paribus (all other things being equal), this leads to a lower equilibrium price and a higher equilibrium quantity.
- Leftward Shift in Demand Curve: This represents a decrease in demand. Ceteris paribus, this leads to a lower equilibrium price and a lower equilibrium quantity.
Combined Effect
When analyzing the net effect of these opposing forces:
- On Price: Both the increase in supply and the decrease in demand exert downward pressure on the price. Consequently, the equilibrium price will unambiguously decrease.
- On Quantity: The forces act in opposite directions. The supply shift tends to increase quantity, while the demand shift tends to decrease it. The final result depends on the relative magnitude of the shifts:
- If the increase in supply is greater than the decrease in demand, the equilibrium quantity increases.
- If the decrease in demand is greater than the increase in supply, the equilibrium quantity decreases.
- If both shifts are of equal magnitude, the equilibrium quantity remains unchanged.
Since the relative magnitude of the shifts is not specified, the effect on quantity is indeterminate.
Key Takeaway: When supply and demand curves shift in directions that have opposing effects on quantity (one increasing it, the other decreasing it), the net change in equilibrium quantity cannot be determined without knowing the magnitude of the shifts.