Question

6. Using three-step method to analyze the effects of each even on the equilibrium price and quality of good A. a) the price of substitutes of good A falls. b) the technology improvement. c) (a) and (b) both occur.

Answer 1

P Fall in price of substitute 1) Fall in price of substitutes: -- Demand curve shifts -- Demand shifts left -- Price and quantity both fall D, D Q, Qi 2) Technology Improvement D Technology Improvement S. S -- Supply curve shifts -- Supply shifts right -- Price falls and quantity increases Q, Q2 3) A and B both occurs -- Demand curve and supply curve shift -- Demand curve shifts left and supply curve shifts right -- Price unambiguously falls; and effect on quantity is ambiguous. The decrease in demand reduces quantity, the rise in supply increases quantity.