In 1999, both the equilibrium price and equilibrium quantity of widgets increased. Use supply and demand analysis to explain how these changes could have occurred
What will be an ideal response?
There are two possible causes of the increase in price: an increase in demand or a decrease in supply. If demand increases, equilibrium quantity also rises. Thus, this could be the cause of the changes in the widget market. On the other hand, a decrease in supply raises equilibrium price but lowers the equilibrium quantity sold. This means that it could not be the cause of the change described. Therefore, the change described in the widget market must have been caused by an increase in the demand for widgets.
You might also like to view...
Can phenomena as diverse as pencil production and highway traffic be legitimately studied by economists?
A) No. One is properly in the field of business, the other in city planning. B) No. Although production is properly in the field of economics, highway traffic is only properly studied by planners and environmentalists. C) Yes. Both phenomena emerge from choices of individuals with limited information. D) Yes. Both phenomena emerge in the market system without any human intervention.
Why does an indifference curve slope downward and why is it bowed toward the origin?
What will be an ideal response?