Asked by Jasmine Mendoza on Jul 22, 2024
Verified
Assume that an economy producing two products, skateboards and in‐line skates, is initially in equilibrium, and that skateboards and in‐line skates are substitutes. If consumer preferences shift away from skateboards and toward in‐line skates, which of the following will not occur?
A) In the short run, firms producing skateboards will incur losses.
B) In the short run, firms producing in‐line skates will earn a profit.
C) Additional capital will begin to flow into in‐line skates production in the long run.
D) Additional capital will begin to flow into skateboard production in the long run.
Skateboards
Skateboards are a type of sports equipment used for skateboarding, consisting of a flat board with wheels attached.
In‐line Skates
A type of roller skate where the wheels are arranged in a single line to mimic the blade of an ice skate, allowing for a variety of maneuvers.
Equilibrium
A state in a market or economy where supply equals demand, resulting in price stability and no net change in economic quantities.
- Assess the repercussions of changes in consumer inclinations on the equilibrium state of the market and the performance efficiency of businesses.
Verified Answer
TM
titus morrisJul 25, 2024
Final Answer :
D
Explanation :
When consumer preferences shift away from skateboards and toward in-line skates, it is expected that the demand for skateboards will decrease while the demand for in-line skates will increase. This shift in demand will likely lead to losses for skateboard producers and profits for in-line skate producers. Over time, capital will move towards the more profitable in-line skate production rather than skateboard production, making option D incorrect.
Learning Objectives
- Assess the repercussions of changes in consumer inclinations on the equilibrium state of the market and the performance efficiency of businesses.