Quiz_4_Answer_Key

Quiz_4_Answer_Key - The jeans market is initially in...

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The jeans market is initially in equilibrium. However, the price of one of the inputs in manufacturing jeans, the cloth, has suddenly increased. 1) At the initial equilibrium price, we will now have: a) Still an equilibrium quantity; b) A shortage (or excess demand); c) A surplus (or excess supply); d) An undetermined result (not enough information). 2) What do you expect to happen in the new equilibrium when compared to the initial one? a) Price and Quantity both increase b) Price and Quantity remain the same c) Price and Quantity both decrease d) Price falls and Quantity increases e) Price rises and Quantity decreases Hint: You may want to sketch the initial equilibrium and the shifts that occur as a consequence of the cloth price increase.
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Answer: We can solve this using graphic tools. D is the demand function, S1 the original supply and S2 the supply after the price of cloth increased. q1,p1 are the initial equilibrium and q2,p2 the new equilibrium. s is the quantity supplied after the supply
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Quiz_4_Answer_Key - The jeans market is initially in...

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