If both supply and demand decrease, what can we predict about the equilibrium quantity?

When both supply and demand decrease, it significantly impacts the equilibrium quantity in a market. The equilibrium quantity is determined by the intersection of the supply and demand curves.

A decrease in demand means that consumers are willing to purchase less of a good or service at any given price, which shifts the demand curve to the left. Simultaneously, a decrease in supply indicates that producers are willing to sell less of a good or service at any price, shifting the supply curve to the left as well.

When both curves shift leftward, the new intersection point, representing the new equilibrium quantity, will be lower than the previous equilibrium quantity. Although the equilibrium price may be influenced in varying ways (it could potentially rise, fall, or remain unchanged depending on the magnitude of the shifts), we can confidently say that the equilibrium quantity will decrease because less of the good is both demanded and supplied at the new equilibrium.

This relationship illustrates the foundational concepts of supply and demand: when both sides of the market contract, the overall exchange quantity diminishes. Hence, concluding that equilibrium quantity will decrease is grounded in the principles governing market dynamics.