Question

Consider the market for pens. Suppose that a new educational study has proven that the practice of writing, erasing, and rewriting improves students' ability to process information, leading parents to steer away from pen use in favor of pencils. Moreover, the price of plastic, 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 supoly 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.

Next, complete the following graph, labeled Soenario 2, by shifting the supply and dernand curves in the same way that you did on the Soenario 1 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 ship-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.

True or False: When both the demand and supply curves shift, the curve that shifts by the smaller magnitude determines the effect on the undetermined equilibrium object.

Answer 1

It has been stated that the new educational study has resulted in reduced preference for pen.

This reduced preference for pen will result in a decrease in the demand for pen.

Moreover, it has been stated that the price of plastic, an important input in pen production, has increased considerably.

This increase in the price of input will increase the cost of producing pen leading to decrease in the supply of pen.

So, both demand and supply of pen will decrease.

However, we have not been provided the magnitude of decrease in the both demand and supply.

So,

Scenario 1

Both demand and supply decreases but decrease in demand is greater than the decrease in supply.

Following is the required figure -

Scenario 1 Supply PRICE Dolars per per Demand Demand QUANTITY (Millions of penu)

Scenario 2

Both demand and supply decreases but decrease in demand is less than the decrease in supply

Following is the requirde figure -

Scenario 2 PRICE Dolars per en Demand Dernand QUANTITY (Milions of pens)

Following is the complete table -

Equilibrium Object	Scenario 1	Scenario 2	When shift magnitude are unknown
Price	Decrease	Increase	Cannot be determined
Quantity	Decrease	Decrease	Decrease

When both demand and supply curves shift, the curve that shifts by the greater magnitude determines the effect on the undetermined equilibrium object.

Thus,

The given statement is False.