# 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 penproduction, 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 110SupplyDemand7SupplyDemand1310QUANTITY (Millions of pens)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 1graph.PRICE (Dollars per pen) 10SupplyDemandSupply3Demand13410QUANTITY (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 ObjectsScenario 2Equilibrium ObjectScenario 1When Shift Magnitudes Are UnknownPriceQuantityTrue or False: When both the demand and supply curves shift, you can always determine the effect on price and quantity without knowing themagnitude of the shifts.PRICE (Dollars per pen)

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Step 1

Suppose there is one market for pen. Initially, the demand and supply intersect at the price of \$5 per pen and the corresponding quantity is 5 million pens. Suppose that parents start forcing students to substitute pencils for pen, then there is an increase in the demand for pencils and a decrease in the demand for pens.

Step 2

On the other hand, a fall in the input price of plastics reduces the cost of the pen. This shifts the supply curve to the right. In scenario 1, an increase in the supply of pen is greater than the fall in demand for it. This can be graphically explained as follows.

Step 3

In scenario 2, the magnitude of the shift in the supply curve is less than the shift in demand. Th...

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