In 1999, both the equilibrium price and equilibrium quantity of widgets increased. Use supply and demand analysis to explain how these changes could have occurred
What will be an ideal response?
There are two possible causes of the increase in price: an increase in demand or a decrease in supply. If demand increases, equilibrium quantity also rises. Thus, this could be the cause of the changes in the widget market. On the other hand, a decrease in supply raises equilibrium price but lowers the equilibrium quantity sold. This means that it could not be the cause of the change described. Therefore, the change described in the widget market must have been caused by an increase in the demand for widgets.
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If producers believe that the increase in their relative prices is small relative to the increase in the general price level, then the slope of the short-run aggregate supply curve will be
A) zero. B) small. C) large. D) negative.
Assume a simple economy without a government and that saving and borrowing behavior is never observed. Then the value of
A) production is equal to income. B) expenditures is less than the value of production. C) production is less than the value of expenditures. D) production is less than income.
Critics of the current system of flexible exchange rates allege that it
a. promotes inflation b. promotes unemployment c. gives central banks too little discretion over their money supplies d. restricts the growth of developing countries e. gives too much financial power to industrial countries
If the interest rate rises, an individual could choose to
a. increase consumption when young. b. increase consumption when old. c. decrease consumption when young. d. Any of the above could be correct.