Question

In: Economics

Pens are normal goods. What will happen to the equilibrium price of pens if the prices...

  1. Pens are normal goods. What will happen to the equilibrium price of pens if the prices of pencils rises, consumers experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to rise in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers increase?

Solutions

Expert Solution

In all these cases, equilibrium price of pens increases. This is explained below.
Pens and pencils are substitutes. So, as price of pencils rise, its demand will decrease. Thus, demand for pens will increase. This will increase the equilibrium price of pens.
An increase in income increases the demand for normal goods. So, equilibrium price of pens rise.
As writing in ink becomes fashionable, demand for pens will increase. So, equilibrium price of pens rise.
As people expect the price of pens to rise in the near future, they will increase their demand now. So, equilibrium price of pens rise.
As the population increases, demand for normal goods increase. So, equilibrium price of pens rise.
As fewer firms manufacture pen, supply of pens decrease. So, equilibrium price of pens rise.
As  the wages of pen-makers increase, cost of production of pens increase which decrease the supply of pens. So, equilibrium price of pens rise.


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