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Question

When the supply of a good decreases, keeping the demand constant, its equilibrium quantity .
  1. increases
  2. decreases
  3. remains same
  4. is ambiguous


Solution

The correct option is B decreases
When supply decreases, the market is no longer at equilibrium. The quantity demanded exceeds the quantity supplied, leading to shortage and increase in prices. This would cause an upward movement along the demand curve. Hence, the equilibrium quantity decreases.

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