Consider the market for bicycles, where the demand and supply equations are given by: Demand: Qd = 200 - 5P, Supply: Qs = 20 + 3P. How does a decrease in consumer preferences for bicycles affect market equilibrium?

Question

Equilibrium price and quantity increase
Equilibrium price and quantity decrease
Equilibrium price increases, quantity decreases
Equilibrium price decreases, quantity increases

Answer 1

Equilibrium price decreases, quantity increases

When consumer preferences for bicycles decrease, the demand for bicycles will decrease. This will shift the demand curve to the left. As a result, the equilibrium price will decrease and the equilibrium quantity will increase. This is because with lower demand, suppliers will have excess supply at the current price, leading to a decrease in price in order to clear the market. At the same time, the quantity supplied will increase as suppliers try to sell off the excess inventory.