10) For each of the following changes, show the effect on the supply curve and state what will happen to market equilibrium price and quantity in the short run.

10) For each of the following changes, show the effect on the supply curve and state what will happen to market equilibrium price and quantity in the short run.

a.         The government requires pollution control filters that raise costs on goods.

b.         Wages of workers in this industry fall.

c.         There is an improvement in technology.

d.         The price of the good falls.

e.         Producers expect that the price of the good will fall in the future.

 

answer:

a. Supply decreases; equilibrium price rises and quantity falls.

Explanation:

Anything that raises cost of production will decrease supply. It means supply curve shifts leftward leading to decrease in equilibrium quantity and increase in price level.

b. Supply increases; equilibrium price falls and quantity rises.

Explanation:

Anything that decreases cost of production (decrease in wages leads to fall in cost of production) will increase supply. It means supply curve shifts rightward leading to increase in equilibrium quantity and fall in price level.

c. Supply increases; equilibrium price falls and quantity rises.

Explanation:

Anything that decreases cost of production (tecgnological improvement leads to fall in cost of production) will increase supply. It means supply curve shifts rightward leading to increase in equilibrium quantity and fall in price level.

d. A fall in the price of a good leads to a movement along the supply curve, and the quantity supplied will decrease as price decreases. Because price and quantity supplied are directly related.

e. When Producers expect that the price of the good will fall in the future,Supply will increase now and equilibrium price will fall and quantity will rise.

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