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1:04 PM Mon Sep 11 47% AA Bng.cengage.com E}: C [I] + u Course Hero 3-1 Quiz ECO201T1097 Microeconomics... a 3: MindTap - Cengage Learning
1:04 PM Mon Sep 11 47% AA Bng.cengage.com E}: C [I] + u Course Hero 3-1 Quiz ECO201T1097 Microeconomics... a 3": MindTap - Cengage Learning 'i CENGAGE I MINDTAP Q Search this course Module Three Quiz 0 x As for supply, the increase in the price of an important production input, such as the cost of plastic used to make pens, means that it's now more expensive to produce pens. Since an increase in the cost of pen production leads to a decrease in supply, you can illustrate the effect of an increase in the price of plastic by shifting the supply curve up and to the left. Intuitively, this means that, at a given quantity, producers are willing to accept a higher price for pens; alternatively, at a given price, producers are willing to produce fewer pens. Therefore, you should have indicated a positive shift in demand and a negative shift in supply for both scenarios. Compare both the Scenario 1 and Scenario 2 graphs. Notice that after completing both graphs, you can now see a difference between them that wasn't apparent before the shifts because each graph indicates different magnitudes for the supply and demand shifts in the market for pens. Use the results of your answers on both the Scenario 1 and Scenario 2 graphs to complete the following table. Begin by indicating the overall change in the equilibrium price and quantity after the shift in demand or supply for each shift-magnitude scenario. Then, in the final column, indicate the resulting change in the equilibrium price and quantity when supply and demand shift in the direction you previously indicated on both graphs. If you cannot determine the answer without knowing the magnitude of the shifts, choose Cannot determine. Change in Equilibrium Objects Equilibrium Object Scenario 1 Scenario 2 When Shift Magnitudes Are Unknown Price Increases V Increases w/ Increases \\/ Quantity Increases X Decreases X Cannot determine V Points: - 0.67/1 Explanation: Close A Regardless of the magnitudes of the shifts, when the demand increases and the supply curve decreases, the equilibrium price of pens must increase. However, you cannot determine the change in the equilibrium quantity of pens without more information about the relative magnitudes of the shifts. A decrease in the supply curve puts downward pressure on quantity, but an increase in the demand curve puts upward pressure on quantity. In the first scenario, the magnitude of the supply shift is greater than that of demand, so the downward pressure on quantity must overpower the upward pressure on quantity, causing the equilibrium quantity to decrease in this case. In the second scenario, the magnitude of the demand shift is greater than that of supply, so the upward pressure on quantity must overpower the downward pressure on quantity, causing the equilibrium quantity to increase. The lesson here is to be careful when drawing conclusions about changes in the equilibrium outcome when both demand and supply change at the same time. Depending on how large the shifts are relative to one another, changes in the equilibrium price or quantity will differ. The following table illustrates the effects of shifts in demand or supply on the equilibrium price and quantity when the magnitudes of the shifts are unknown: Effects of Shifts in Demand or Supply on Equilibrium No Change in Supply Increase in Supply Decrease in Supply No Change in Demand P and Q unchanged P 1, Q T P i, Q1 Increase in Demand P i, Q T P ?, Q i P i, Q ? Decrease in Demand P i, Q l P i, Q ? P ?, Q 1 (Note: The i (up arrow) indicates that the equilibrium object increases; the l (down arrow) indicates that it decreases; and the ? (question mark) indicates that the direction of the change is unknown.) Scenario 1 10 $1 O Supply Demand Supply PRICE (Dollars per pen) 5 Domand D2 D1 0 1 2 3 4 5 7 8 9 10 QUANTITY (Millions of pens)Scenario 2 $2 10 $1 O Supply Demand B 7 Supply PRICE (Dollars per pen) 5 D2 3 Domand N D1 2 3 4 5 6 7 9 10 QUANTITY (Millions of pens)
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