Suppose that, last year, the price of peanuts fell and the quantity sold 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 drop in price: a decrease in demand or an increase in supply. If demand decreases, equilibrium quantity also falls. Thus, this could not be the cause of the changes in the peanut market. On the other hand, an increase in supply lowers equilibrium price while increasing the equilibrium quantity sold. Therefore, the supply of peanuts must have increased.
You might also like to view...
A minimum wage that is above the equilibrium wage rate
A) increases efficiency within the labor market. B) increases the quantity of labor demanded. C) creates a deadweight loss. D) has no effect on the labor market because it is set above the equilibrium wage rate. E) None of the above answers is correct.
The ________ is referred to as future value
A) product of interest payments and principal B) ratio of interest payments to principal C) ratio of principal to interest payments D) sum of interest payments and principal