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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold?

a. an increase in the price of peanut better, a complement to jelly

b. an increase in the price of Marshmallow Fluff, a substitute for jelly

c. an increase in the price of grapes, an input into jelly

d. an increase in consumers’ incomes, as long as jelly is a normal good

To determine

Change in equilibrium price and quantity.

Explanation

Option (c):

When the price of grapes, an input of jelly increases, the demand curve shifts to the right and supply curve to the left. This results in the increase in the equilibrium price and a decrease in the equilibrium quantity.  Thus, option ‘c’ is correct.

Option (a):

Since peanut butter is a complement of jelly, an increase in the price of the peanut butter, decreases the demand of jelly shifting it to the left. In effect, the equilibrium price of jelly decreases along with a decrease in equilibrium quantity of jelly that was sold. So option ‘a’ is incorrect...

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