Question

Consider the market for pens. Suppose that the number of students with an allergy to pencil erasers increases, causing more students to switch from pencils to pens in school. Moreover, the price of ink, an important input in pen production, has increased considerably. On the following graph, labelled Scenario 1, indicate the effect these two events have on the demand for and supply of pens. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. Created with Raphaël 2.1.2Scenario 1DemandSupply012345678910109876543210PRICE (Dollars per pen)QUANTITY (Millions of pens)Demand   Supply    Created with Raphaël 2.1.2 Points: Next, complete the following graph, labelled Scenario 2, by shifting the supply and demand curves in the same way that you did on the Scenario 1 graph. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. Created with Raphaël 2.1.2Scenario 2DemandSupply012345678910109876543210PRICE (Dollars per pen)QUANTITY (Millions of pens)Demand   Supply    Created with Raphaël 2.1.2 Points: Close Explanation Explanation: Compare both the Scenario 1 and Scenario 2 graphs. Notice that after completing both graphs, you can now see a difference between them that wasn't apparent before the shifts because each graph indicates different magnitudes for the supply and demand shifts in the market for pens. Use the results of your answers on both the Scenario 1 and Scenario 2 graphs to complete the following table. Begin by indicating the overall change in the equilibrium price and quantity after the shift in demand or supply for each shift-magnitude scenario. Then, in the final column, indicate the resulting change in the equilibrium price and quantity when supply and demand shift in the direction you previously indicated on both graphs. If you cannot determine the answer without knowing the magnitude of the shifts, choose Cannot determine. Equilibrium Object Change in Equilibrium Objects Scenario 1 Scenario 2 When Shift Magnitudes Are Unknown Price selector 1    Cannot determine Decreases Increases selector 2    Cannot determine Decreases Increases selector 3    Cannot determine Decreases Increases Quantity selector 4    Cannot determine Decreases Increases selector 5    Cannot determine Decreases Increases selector 6    Cannot determine Decreases Increases Points: Close Explanation Explanation: True or False: When both the demand and supply curves shift, the curve that shifts by the larger magnitude determines the effect on the undetermined equilibrium object.

Answer 1

True.