5. What would happen to the equilibrium price and quantity exchanged in the following cases? a....

5. What would happen to the equilibrium price and quantity exchanged in the following cases?

a. An increase in income and a decreasing price of a complement, for a normal good.

b. A technological advance and lower input prices.

c. An increase in the price of a substitute and an increase in income, for an inferior good.

Solutions

Expert Solution

a) An increase in the income and decrease in the price of the complement will increase the quantity exchanged and price of the product. People will more income will demand more goods and due to a decrease in the price of complement, the demand will be even higher. This will increase the quantity demanded and the price of the goods.

b) This will increase the quantity demanded and the price will be lower. This changes will shift the supply curve to the right at a lower price and higher quantity.

c) An increase in the price of a substitute will increase the demand for the good but an increase in the income will decrease the demand for the same good. We have to evaluate the tradeoff between the increased income and increase in the price of the substitute. If income has increased more than the price of substitute the price of the good will fall and quantity demanded will decrease and vice versa.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Explain what will happen to the equilibrium price and equilibrium quantity of bonds in each of...

Explain what will happen to the equilibrium price and equilibrium quantity of bonds in each of the following situations. (If it is uncertain in which direction either the equilibrium price or equilibrium quantity will change, explain why.) Wealth in the economy increases at the same time that Congress raises the corporate income tax. A.The demand curve will shift to the left and the supply curve will shift to the right. This decreases the price of bonds and the quantity of...

38. Chapter 4 What would happen to the equilibrium price and quantity of peanut butter if...

38. Chapter 4 What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts went up, the price of jelly (a complementary good) increased, fewer firms decided to produce peanut butter, and health officials announced that eating peanut butter was bad for you? Explain why. a. price will fall and the effect on quantity is ambiguous b. price will rise and the effect on quantity is ambiguous c. quantity will fall and the effect...

O1. What will happen to the market equilibrium price and quantity for the following situation? Explain...

O1. What will happen to the market equilibrium price and quantity for the following situation? Explain your answer using the graphs. The effect of a decrease in incomes on the market for secondhand vehicles The effect of a governmental subsidy on the market for AIDS research The effect of a decline in the price of irrigation equipment on the market for corn The effect of a decline in the price of personal computers on the market for software The effect...

10. What will happen to the equilibrium price and equilibrium quantity for e-cigarettes if new studies...

10. What will happen to the equilibrium price and equilibrium quantity for e-cigarettes if new studies show that e-cigarettes cause lung cancer (all else being equal)? Equilibrium price will increase, and equilibrium quantity will increase Equilibrium price will increase, and equilibrium quantity will decrease Equilibrium price will decrease, and equilibrium quantity will increase Equilibrium price will decrease, and equilibrium quantity will decrease 11. What will happen to the equilibrium price and equilibrium quantity for a normal good...

Which of the following would cause both the equilibrium price and equilibrium quantity of potatoes (assume...

Which of the following would cause both the equilibrium price and equilibrium quantity of potatoes (assume that potatoes are an inferior good) to decrease? an increase in consumer income a freeze that sharply reduces potato output a decrease in consumer income a technological advancement that results in a bumper crop of potatoes Prices of Golden Eggs (assume that this is a normal good) have risen steadily in recent years. Over this same period, prices for regular eggs have dropped and...

In each of the following situations, list what will happen to the equilibrium price and the...

In each of the following situations, list what will happen to the equilibrium price and the equilibrium quantity for a particular product, which is an inferior good. The population decreases and productivity increases The income increases and the price of inputs increase The number of firms in the market decreases and income decreases Consumer preference decreases and the price of a complement increases The price of a substitute in consumption increases and the price of...

In each of the following situations, list what will happen to the equilibrium price and the...

In each of the following situations, list what will happen to the equilibrium price and the equilibrium quantity for a particular product, which is a normal good. a. Price is expected to increase in the future. b.The number of firms in the market increases and income increases. c. The population increases and the price of inputs increase. d.The price of a complement increases and technology advances. e. Consumer preference increases and the price of a substitute in production decreases.

A competitive market is in long-run equilibrium. If demand increases, what would happen to the price...

A competitive market is in long-run equilibrium. If demand increases, what would happen to the price level, output level, profits earned, and the number of firms in the market in the short and long run when some resources used in production are only available in limited quantities? Please show your answers with diagrams.

What will happen to the nominal interest rate and the equilibrium quantity of money because of...

What will happen to the nominal interest rate and the equilibrium quantity of money because of the following changes? Draw a separate diagram (of the static liquidity-preference model) for each case and explain. Label the diagram clearly. a) A decrease in money supply. b) An increase in the level of prices

1. Consider a market with an effective price floor. What willhappen to the quantity exchanged...

1. Consider a market with an effective price floor. What will happen to the quantity exchanged in the market if demand for the product increases? The quantity exchanged will ______________.a increaseb decreasec not changed One cannot tell.2. If demand is elastic, should a producer raise or lower price if the producer wants to increase total revenues?a The producer should lower prices.b The producer should raise prices.c It depends upon the elasticity of supply.d Neither change will increase revenues.3. A firm...

Subjects