Consider the market for pens. Suppose that increased medical concerns over lead pencils have led schools to steer away from pendl use in favor ofpens. Moreover, the price of ink, an important Input in pen production, has Increased considerably.On the following graph, labeled Scenario 1, indicate the effect these two events have on the demand for and supply of pens.Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps backto its original position, just drag it a little farther.Scenario 110SupplyDemandB-0-7Supply3.Demand10QUANTITY (Millions of pens)MacBook AirAA吕0F10F2F3F4PRICE (Dollars per pen) Demand13456810QUANTITY (Millions of pens)Compare both the Scenario 1 and Scenario 2 graphs. Notice that after completing both graphs, you can now see a difference between them thatwasn't apparent before the shifts because each graph indicates different magnitudes for the supply and demand shifts in the market for pens.Use the results of your answers on both the Scenario 1 and Scenario 2 graphs to complete the following table. Begin by indicating the overall changein the equilibrium price and quantity after the shift in demand or supply for each shift-magnitude scenario. Then, in the final column, indicate theresulting change in the equilibrium price and quantity when supply and demand shift in the direction you previously indicated on both graphs. If youcannot determine the answer without knowing the magnitude of the shifts, choose Cannot determine.Change in Equilibrium ObjectsEquilibrium ObjectScenario 1Scenario 2When Shift Magnitudes Are UnknownPriceQuantityTrue or False: When both the demand and supply curves shift, the curve that shifts by the smaller magnitude determines the effect on theundetermined equilibrium object.O TrueO FalseMacBook AirPRICE (I

Answered: Compare both the Scenario 1 and…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter8: Understanding Markets And Industry Changes

Section: Chapter Questions

Problem 2MC

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Consider the market for pens. Suppose that increased medical concerns over lead pencils have led schools to steer away from pendl use in favor of
pens. Moreover, the price of ink, an important Input in pen production, has Increased considerably.
On the following graph, labeled Scenario 1, indicate the effect these two events have on the demand for and supply of pens.
Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back
to its original position, just drag it a little farther.
Scenario 1
10
Supply
Demand
B
-0-
7
Supply
3.
Demand
10
QUANTITY (Millions of pens)
MacBook Air
AA
吕0
F10
F2
F3
F4
PRICE (Dollars per pen)

Demand
1
3
4
5
6
8
10
QUANTITY (Millions of pens)
Compare both the Scenario 1 and Scenario 2 graphs. Notice that after completing both graphs, you can now see a difference between them that
wasn't apparent before the shifts because each graph indicates different magnitudes for the supply and demand shifts in the market for pens.
Use the results of your answers on both the Scenario 1 and Scenario 2 graphs to complete the following table. Begin by indicating the overall change
in the equilibrium price and quantity after the shift in demand or supply for each shift-magnitude scenario. Then, in the final column, indicate the
resulting change in the equilibrium price and quantity when supply and demand shift in the direction you previously indicated on both graphs. If you
cannot determine the answer without knowing the magnitude of the shifts, choose Cannot determine.
Change in Equilibrium Objects
Equilibrium Object
Scenario 1
Scenario 2
When Shift Magnitudes Are Unknown
Price
Quantity
True or False: When both the demand and supply curves shift, the curve that shifts by the smaller magnitude determines the effect on the
undetermined equilibrium object.
O True
O False
MacBook Air
PRICE (I

Expert Solution

Step 1

Answer:

If the medical concern over lead pencils increases causing the increased demand for pens then the demand curve of pens will shift to the right.

If the price of ink (input) increases then the cost of production will increase and the firms will decrease supply. As a result, the supply curve will shift to the left.

Scenario 1: the shift in demand is greater than the shift in supply (shift in demand>shift in supply)

According to the above figure, when the demand curve shifts by a greater amount the price increases, and the equilibrium quantity also increase.

Scenario 2: the shift in the supply curve is greater than the shift in the demand curve (shift in supply>shift in demand)

According to the above figure, when the supply curve shifts by a greater amount the price increases, and the equilibrium quantity decreases.

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