Question

2. In each of the following situations, list what will happen to the equilibrium price and the equilibrium quantity for a particular product, which is a normal good. a. The population increases and the price of inputs increase. b. The price of a complement increases and technology advances. c. The number of firms in the market increases and income increases d. Price is expected to increase in the future e. Consumer preference increases and the price of a substitute in production decreases.

Answer 1

a. The equilibrium price and quantity increases as the increase in population will increase demand and increase in input prices will increase the cost of production leading to increase in prices of final good
b. With the increase in price of complement the price of good too increases and with advancement of technology the supply increases causing the equilibrium quantity demanded to be more.
c. With the increase in number of firms the quantity supplied increases which results in reduced prices while demand increase as income increases. So equilibrium price will decreases while and quantity would increase.
d. Equilibrium price would increase and quantity would decrease
e. With the increase in consumer preference the demand increases and decrease in price of substitute in production decreases would increase the supply of the good. So equilibrium price will decreases while and demand for quantity would increase.