Consider the market for pens. Suppose that a new educational study has proven that the practice of writing, erasing, and rewriting improves students' ability to process information, leading parents to steer away from pen use in favor of pencils. 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. (graph in photo 1) Next, complete the following graph, labeled Scenario 2, by shifting the supply and demand curves in the same way that you did on the Scenario 1 graph. (graph in photo 2) 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. Scenario 1 Scenario 2 When Shift Magnitudes Are Unknown Price Quantity True or False: When both the demand and supply curves shift, you can always determine the effect on price and quantity without knowing the magnitude of the shifts. a. True b. False

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter3: Demand Analysis

Section: Chapter Questions

Problem 1.3CE

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Question

Consider the market for pens. Suppose that a new educational study has proven that the practice of writing, erasing, and rewriting improves students' ability to process information, leading parents to steer away from pen use in favor of pencils. 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.

(graph in photo 1)

Next, complete the following graph, labeled Scenario 2, by shifting the supply and demand curves in the same way that you did on the Scenario 1 graph.

(graph in photo 2)

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.


Scenario 1	Scenario 2	When Shift Magnitudes Are Unknown
Price
Quantity

True or False: When both the demand and supply curves shift, you can always determine the effect on price and quantity without knowing the magnitude of the shifts.

a. True

b. False

Next, complete the following graph, labeled Scenario 2, by shifting the supply and demand curves in the same way that you did on the Scenario 1
graph.
PRICE (Dollars per pan)
10
9
8
7
2
1
0
0
+
1
2
Scenario 2
Supply
Domand
3 4 5 6
7
QUANTITY (Millions of pens)
8
9
10
Demand
Supply

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.
PRICE (Dollars par pan)
10
9
8
7
1
0
0
1
2
Scenario 1
3
4
5 6 7
QUANTITY (Millions of pans)
Supply
Domand
60
8
9 10
Demand
Supply

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