16. 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 plastic, a major input in the pen production process, has dropped 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.

Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try:r to move a curve and it snaps back to its original position, just drag it a little farther. SCEI'IBI'ID'I IO + 9' Su | 3 pp Demand 7" E' 3 5 a Supply D. E! 5 ---------+ '3 I 9 I 4 E I E a I : emand 2 I I I I El u 1 2 a 4 5 a 7 s 9 1o QUANTITY {Millions of pens) \fICompare 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 resuits of your answers on both the Scenario 1 and Scenario 2 graphs to compiete the ipii'owing tatrie. Begin by indicating the overallI change in the equiiibrium once and quantity after the shift in demand or supply for each shiftmagnitude scenario. Then, in the finai coiumn, indicate the resuiting 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 1lilihen Shift Magnitudes Are Unknown Price V v 7 Quantity 7 v v True or False: 1when both the demand and supply curves shift, the curve that shifts by the larger magnitude detennines the effect on the undetermined equilibrium object. 0 True 0 False 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.r and demand shifts in the market for pens. Use the resuits of your answers on both the Scenario I and Scenario 2 graphs to compiete the foiiowing tahie. Begin by indicating the overaii change in the eduiiibrium price andI quantity after the shift in demand or suppiy for each shiftmagnitude scenario. Then, in the finai coiumn, indicate the resuiting change in the eouiiibrium price and quantity when suppiy and demand shift in the direction you previousiy 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 7 v 7 Quantity 7 v 7 Cannot determine True or False: 1u'i'hen both Decreases Il',r curves shift, the curve that shifts by the larger magnitude detennines the effect on the undetermined equilibrium Increases 0 True 0 False