Answered: Consider the market for baseball bats…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider the market for baseball bats below (and assume it can be analyzed in our typical supply/demand framework).

If the price of ash (the kind of wood used to make baseball bats) increases, the market equilibrium price of bats will increase and the equilibrium quantity will decrease. You should think about what this would look like on the graph above (i.e., with appropriate shift (or shifts)).

Suppose an analyst for “Baseball World" argues that because the price of bats has risen, people will buy fewer units, and this will cause the equilibrium price to decrease again. This analyst is

Group of answer choices

a) correct because otherwise there would be a shortage in the market.

b) incorrect because people buying fewer is a movement along the demand curve (not a leftward shift) in this case because buyers are reacting to the increase in price.

c) correct because otherwise there would be a surplus in the market.

d) incorrect because actually “people buying fewer” will make the price rise even further.

e) correct because whenever people buy fewer units, the price will subsequently decrease.

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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