2. Suppose there is a reduction in input prices. Draw demand and supply curves and show...
2. Suppose there is a reduction in input prices. Draw demand and supply curves and show what will happen to the new equilibrium price and quantity. Will they increase or decrease?
3. Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market? (Will price and quantity go up, down, or is ambiguous to determine?)
Homework Answers
Ans) 1) With decrease in price of raw materials (input price), supply will increase and supply curve will shift to the right. As a result, price will decrease and quantity will increase.
2) Decrease in income will decrease the demand. While reduction in input price will increase the supply.
Therefore, price will decrease but the quantity will depend upon the magnitude of shift of demand and supply curve.
Add Answer to:
2. Suppose there is a reduction in input prices. Draw demand and
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