What will happen to the equilibrium price and quantity of pens if the price 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? a. Equilibrium quantity would decrase, but the impact on equilibruim price would be ambiguous. b. Equilibruim price would increase, but the impact on equilibruim quantity would be ambigious. c. Equilibrium quantity would incrase, but the impact on equilibruim would be ambiguous d. Equilibrium price increases and equilibruim quantity decreases e. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.
What will happen to the
a.
b. Equilibruim price would increase, but the impact on equilibruim quantity would be ambigious.
c. Equilibrium quantity would incrase, but the impact on equilibruim would be ambiguous
d. Equilibrium price increases and equilibruim quantity decreases
e. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.
Answer: option b (Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous)
Explanation:
Due to the rise in the price of pencils (a substitute good), increase in income, writing in ink becomes fashionable (preferences for pen increases), people expect the price of pens to rise in the near future and increase in population the demand curve will shift to the right. All the above factors will lead to an increase in the demand for pens.
Now if fewer firms manufacture pens and the wage of pen-makers increases then the supply of pens will decrease and the supply curve will shift to the left.
Now, due to a rightward shift in the demand curve and a leftward shift in the supply curve the price of pens will increase. bUt the impact on equilibrium quantity would be ambiguous. The change will quantity will depend on the respective shift of the demand and supply curve.
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