Chapter 7, Problem 2CYU

To determine

The question requires us to determine the impact of the given events on the demand and supply curve, and on the equilibrium quantity and equilibrium price.

Explanation of Solution

The given options are:

1. A fall in the price of gasoline leads to a higher supply of large cars. A higher supply of cars shifts the supply curve to the right and causes the equilibrium price to fall and the equilibrium quantity to increase in the market for cars.
2. A technological innovation reduces the costs of production and thus encourages the producers to supply more. A higher supply of paper shifts the supply curve to the right and causes the equilibrium price to fall and the equilibrium quantity to increase in the market for paper.
3. A fall in the price of movie-streaming services increases the demand for such services. A higher demand shifts the demand curve to the right and causes both the equilibrium price and equilibrium quantity to increase.

Economics Concept Introduction

The following table represents the changes in equilibrium quantity and equilibrium price when demand and supply change:

Factors	Equilibrium quantity	Equilibrium price
Increase in demand	Increase	Increase
Decrease in demand	Decrease	Decrease
Increase in supply	Increase	Decrease
Decrease in supply	Decrease	Increase