Question

Suppose that the market for wooden number 2 lead pencils is in equilibrium. Determine how the
     following shocks will affect the equilibrium price and quantity. Draw a graph to illustrate each answer.

1. Professors require ink on all exams.
2. The price of lead increases.
3. School attendance falls.
4. Environmental legislation restricts lumber harvests.
5. Pencil makers receive a large wage increase.
6. The price of ballpoint pens falls.

Answer 1

Professors require ink on all exams. This would discourage students to buy pencils and instead buy pen. Hence demand for wooden number 2 lead pencils decreases and demand curve shifts left. Equilibrium price falls. Equilibrium quantity falls.

The price of lead increases. As the input price is increased, cost of producing wooden number 2 lead pencils rises. Supply of wooden number 2 lead pencils decreases and supply curve shifts left. Equilibrium price rises. Equilibrium quantity falls.

School attendance falls. This implies fewer students attend school and so they demand fewer pencils. Hence demand for wooden number 2 lead pencils decreases and demand curve shifts left. Equilibrium price falls. Equilibrium quantity falls.

Environmental legislation restricts lumber harvests. This reduces the quantity of raw material and increases its price. As the input price is increased, cost of producing wooden number 2 lead pencils rises. Supply of wooden number 2 lead pencils decreases and supply curve shifts left. Equilibrium price rises. Equilibrium quantity falls.

Pencil makers receive a large wage increase. Once again, the cost of producing wooden number 2 lead pencils rises. Supply of wooden number 2 lead pencils decreases and supply curve shifts left. Equilibrium price rises. Equilibrium quantity falls.

The price of ballpoint pens falls. This is a substitute for pencils. Hence consumers switch to the market for cheaper ballpoint pens and so demand for wooden number 2 lead pencils decreases and demand curve shifts left. Equilibrium price falls. Equilibrium quantity falls.