Comment on the following statement: "A decrease in supply will lead to an increase in the price which decreases demand, thus lowering price. Therefore, a decrease in supply has no effect on the price of a good."
What will be an ideal response?
The statement is incorrect because it confuses a decrease in quantity demanded with a decrease in demand. When supply decreases, the price increases and quantity demanded falls (shown by a movement along the demand curve). Demand does not change.
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a. True b. False Indicate whether the statement is true or false
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