13. How shifts in demand and supply affect equilibrium Consider the market for pens. Suppose that new research has been published stating that the process of writing, erasing, and rewriting improves memorization, leading parents to avoid giving their children pens in favor of pencils. Further, the price of ink, a major input in the pen production process, has increased sharply. On the following graph, labeled Scenario 1, indicate the effect these two events have on the demand for and supply of pens. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. @ Scenario 1 O o s Sunpy Demand T O 8 Supply 5 - - -+ FRICE {Dollars per pen) o 1 2 3 4 5 & 7 2 g 10 QUANTITY (Millions of pens) Next, complete the following graph, labeled Scenario 2, by shifting the supply and demand curves in the same way that you did on the Scenario 1 graph. Scenario 2 10 O g Suppl 3 o Demand = N g 5 5 Supply % 5 -+ w4 o T o3 2 1 0 0 1 2 3 4 5 8 7 g g 10 QUANTITY (Millions of pens) Compare both the Scenario 1 and Scenario 2 graphs. Motice 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 guantity after the shift in demand or supply for each shift-magnitude scenario. Then, in the final column, indicate the resulting change in the eguilibrium 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 v v hd Quantity - v - True or False: When both the demand and supply curves shift, you can always determine the effect on price and quantity without knowing the magnitude of the shifts. QO True O False