Question

In: Economics

You are analyzing the market for soccer balls. In particular, you want to analyze the change...

You are analyzing the market for soccer balls. In particular, you want to analyze the change in equilibrium price and quantity in that market, after these three events have occurred:

Event 1: A new soccer player becomes a huge success. This has two effects. First, it incentivizes more buyers to consume soccer balls. Second, the preferences of everyone change (old and new customers), as now many want to be a soccer player.

Event 2: A rise in the price of caucho or caoutchouc, input that is used in construction of soccer balls.

Event 3: The income of all (new and old) consumers of soccer balls has increased and a soccer ball is considered to be a normal good.

Which of the following statements is true relative to the equilibrium market before these events?

Group of answer choices

The equilibrium price of soccer balls increases but the effect in quantity depends on the magnitude of the shifts in demand and supply

The equilibrium quantity of soccer balls increases for sure but the effect in price depends on the magnitude of the shifts in demand and supply

The equilibrium price increases and the equilibrium quantity of soccer balls decreases

The equilibrium price decreases and the equilibrium quantity of soccer balls increases

Expert Solution

Event 1 results rise in demand for soccer ball.

Both changes in event 1 will increase the demand for soccer balls and deman curve for soccer balls shift to right resulting icrease in equilibrium price and quantity.

It is shown in fig A in image

Even 2 result decrease in supply of soccer balls because price of inpu has increased. This will shift supply curve to left resulting increase in equilibrium price and fall in equilibrium quantity .It is shown in fig B in image

Event 3 result in an increase in demand resulting demand curve to shift to right. Equilibrium price will rise and equilibrium quantity will also rise. It is shown in fig C in image

Regarding equilibrium market 1st statement is correct

The equilibrium price of soccer balls increase but the effect in quantity depends on magnitude of shift in demand and supply.

Rahul Sunny answered 2 years ago

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