Answer to Question #257396 in Macroeconomics for Elyverse

Question

Assume gadgets are sold in a competitive market, the equilibrium price is $6, and the equilibrium quantity is 500 units.

(a) Using the numerical values above, draw a correctly labeled graph of the market for gadgets and show each of the following.

(i) The equilibrium price

(ii) The equilibrium quantity

(b) At a price of $8 per unit, will there be a surplus or a shortage in the market? Explain.

(c) Assume gadgets now become more popular. On your graph in part (a), show the effect of the increase in gadgets' popularity on the equilibrium price and quantity of gadgets.

(d) Assume instead there is an increase in the price of tin, a major input in producing gadgets. What will be the effect of an increase in the price of tin on the market for gadgets?

(e) If both changes in part (c) and part (d) occurred simultaneously, will the equilibrium quantity of gadgets increase, decrease, remain unchanged, or be indeterminate? Explain.

Answer 1

(a)

(B)There will be surplus at a price of $8 per unit because it is an increase in price and it is currently at equilibrium

(C)

(D)As the price of the intermediate goods for gadgets increases, the price of the gadgets will also increase. This will have an effect on the market for gadgets because the demand will decrease as the expected future price increases and the supply will decrease as it becomes more expensive to produce the gadgets for companies

(E))When both an increase occurs in the input of producing gadgets the price will decrease and supply and demand will increase. Due to these changes occurring at the same time, the quantity of gadgets will be hard to predict or interdigitate.