Answer to Question #24583 in Microeconomics for saad

Question

Let's say that companies that produce and sell silk shirts hire analysts to analyze the economy and make guesses about the future, and that those analysts predict that the economy will worsen and fewer people will want to buy silk shirts next month.

To make this extra clear, let's say that the analysis is done in Month One, and the change in how many people will want to buy silk shirts is expected to occur in Month Two. In Month One, the likely effect on the market for silk shirts will be:


A. P* up, Q* down


B. P* up, Q* up


C. P* down, Q* down


D. P* down, Q* up


E. A movement to the right along the supply curve.

Answer 1

A. P* up, Q* down
According to the expectation the supply curve will shift leftward to fit the future change. So the price will rise and the quantity will fall.