Western Governors University (WGU) ECON5000 C211 Global Economics for Managers Practice Exam

When demand decreases, it means that consumers are less willing or able to purchase the same quantity of a good at a given price, which typically puts downward pressure on prices. Conversely, an increase in supply indicates that producers are willing to sell more of the good, often leading to an oversupply in the market if demand does not match it. With both scenarios occurring at the same time—decreasing demand and increasing supply—the interplay suggests that the overall market equilibrium will adjust to a lower price level.

The decrease in demand contributes to a surplus of goods in the market since fewer consumers are purchasing at higher prices. At the same time, the increase in supply exacerbates this surplus as more goods are available than consumers are willing to buy. Consequently, to clear the market and equilibrate supply with the decreased demand, prices are likely to fall. The combination of these two forces leads to a clear expectation of decreased prices in the market.