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21. Suppose that you are analyzing the market for pianos in Melmac. Pianos are a normal good. Further, suppose that you observe that the population of Melmac is decreasing and the interest rates for borrowing by piano producers are decreasing. Then you would conclude that: a equilibrium price will fall and equilibrium quantity could rise, fall or stay the same. b. equilibrium price will rise and equilibrium quantity could rise, fall or stay the same. c. equilibrium quantity will fall and equilibrium price could rise, fall or stay the same. d. equilibrium quantity will rise and equilibrium price could rise, fall or stay the same. e. both equilibrium quantity and equilibrium price will fall.

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Reid Wolff
Reid WolffLv2
4 Feb 2018
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Related questions

World palm oil consumption has been in decline over the past several years as consumers have become more sensitive to the destruction of the rainforest to harvest palm oil. Assume that the palm oil industry is perfectly competitive and consists of firms with U-shaped long-run average cost curves. Suppose the industry was in long-run equilibrium before the decline began. Now consider a permanent downward shift in demand for palm oil. Assume this is a constant cost industry. Compared to the original long-run equilibrium, will the market equilibrium price and output per firm rise, fall, or stay the same in the short run? Compared to the original long-run equilibrium, will the market equilibrium price and output per firm rise, fall, or return to the original equilibrium level in the long run? Explain the dynamic adjustment process from the original long-run equilibrium to the new long-run equilibrium. No graph is required. Circle your final answers for price and quantity below.

Short-Run CIRCLE YOUR ANSWER FOR EACH

Market Equilibrium Price will Rise Fall Remain constant

Output per Firm will Rise Fall Remain constant

Long-Run

Market Equilibrium Price will Rise Fall Return to original level

Output per Firm will Rise Fall Return to original level

1. World palm oil consumption has been in decline over the past several years as consumers have become more sensitive to the destruction of the rainforest to harvest palm oil. Assume that the palm oil industry is perfectly competitive and consists of firms with U-shaped long-run average cost curves. Suppose the industry was in long-run equilibrium before the decline began. Now consider a permanent downward shift in demand for palm oil. Assume this is a constant cost industry. Compared to the original long-run equilibrium, will the market equilibrium price and output per firm rise, fall, or stay the same in the short run? Compared to the original long-run equilibrium, will the market equilibrium price and output per firm rise, fall, or return to the original equilibrium level in the long run? Explain the dynamic adjustment process from the original long-run equilibrium to the new long-run equilibrium. No graph is required. Circle your final answers for price and quantity below. (2 points each for each correct answer circled below and remaining 7 points for explaining the adjustment process.)

Short-Run CIRCLE YOUR ANSWER FOR EACH

Market Equilibrium Price will Rise Fall Remain constant

Output per Firm will Rise Fall Remain constant

Long-Run

Market Equilibrium Price will Rise Fall Return to original level

Output per Firm will Rise Fall Return to original level

 

Because bagels and cream cheese are often eaten together, they are complements.

a. We observe that both the equilibrium price of cream cheese and the equilibrium quantity of bagels have risen. What could be responsible for this pattern—a fall in the price of flour or a fall in the price of milk? Illustrate and explain your answer.

b. Suppose instead that the equilibrium price of cream cheese has risen but the equilibrium quantity of bagels has fallen. What could be responsible for this pattern—a rise in the price of flour or a rise in the price of milk? Illustrate and explain your answer.

 

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