Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Transcribed Image Text:**Diagram Description:**
The diagram illustrates a supply and demand graph.
- **Axes:**
- **Vertical Axis (Price, P):** Represents the price level.
- **Horizontal Axis (Quantity, Q):** Represents the quantity of goods.
- **Lines:**
- **Demand Curve (D):** Slopes downward from left to right, indicating that as price decreases, quantity demanded increases.
- **Initial Supply Curve (S₁):** Slopes upward, indicating that as price increases, quantity supplied increases.
- **Shift in Supply Curve:**
- The initial supply curve (S₁) shifts left to a new position at S₁'.
- This shift leads to a higher equilibrium price (from P₁ to P₂) and a lower equilibrium quantity (from Q₁ to Q₂).
- **Equilibrium Points:**
- **Initial Equilibrium:** Where the original supply curve (S₁) intersects the demand curve (D) at price P₁ and quantity Q₁.
- **New Equilibrium:** Where the shifted supply curve (S₁') intersects the demand curve at price P₂ and quantity Q₂.
**Question:**
In the diagram above, which of the following events would explain the change shown?
**Select one:**
- a. The price of a complementary good has increased, and this is the market for its related good.
- b. There has been an improvement in the technology used to produce the good in this market.
- c. Consumer incomes have increased and this is the market for a normal good.
- d. There has been an increase in the price of an important input used in the production of this good.
Expert Solution
Step 1
The number of units that the producers of a good are willing to supply in the market at different levels is referred to as the supply of a good. It has a positive relationship with the price of the good and hence, is represented as an upward sloping curve.
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