Question

4. How shifts in demand and supply affect equilibrium

Consider the market for pens. Suppose that the number of students with an allergy to pencil erasers increases, causing more students to switch from pencils to pens in school. Moreover, the price of ink, an important input in pen production, has increased considerably.

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 snag into position, so if you try to move a curve and it snaps back: to its original position, Just drag it a little farther.

Next, complete the following graph, labeled Scenario 2, by shiting the supply and demand curves in the same way that you did on the Scenario I graph.

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 shirt in the direction you previously indicated on both graphs. If you cannot determine the answer without knowing the magnitude of the shirts, choose Cannot determine.

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.

Answer 1