Question

Mandalorian iron, also known by its Mando'a name of beskar, was an extremely durable iron ore whose only known source was the Outer Rim world of Mandalore and its moon, Concordia. There is a supernova explosion that happen around the Outer Rim world, so that it has a big negative shock on the production of Mandalorian iron. What will be happening with the market of Mandalorian iron as the result of the supernova explosion?

a. Equilibrium quantity decreases, equilibrium price increases

b. Equilibrium quantity decreases, equilibrium price decreases,

c. Equilibrium quantity increases, equilibrium price decreases

d. Equilibrium quantity decreases, but the effect on equilibrium quantity is uncertain.

Answer 1

ANSWER : a. Equilibrium quantity decreases, equilibrium price increases

Mandalorian iron, also known by its Mando'a name of beskar, was an extremely durable iron ore whose only known source was the Outer Rim world of Mandalore and its moon, Concordia. There is a supernova explosion that happen around the Outer Rim world, so that it has a big negative shock on the production of Mandalorian iron.

As due to a negative shock on the production of Mandalorian iron, the production of Mandalorian iron will be reduced and the producers will decrease the supply of Mandalorian iron. The supply curve will shift leftwards.

As supply curve shift leftwards due to decrease in supply of Mandalorian iron, the equilibrium price level increases from P to P' and equilibrium quantity decreases from Q to Q'.