Asked by Janecia Britt on Jul 20, 2024
Verified
Consider a market for kids' shoes that is initially in equilibrium.For a given upward-sloping demand curve,an increase in the price of Velcro which is used as fasteners for kids' shoes will result in a(n) :
A) increase in both equilibrium price and quantity of shoes.
B) increase in both quantity demanded and quantity supplied of shoes.
C) increase in equilibrium price but a decrease in equilibrium quantity of shoes.
D) decrease in equilibrium price but an increase in equilibrium quantity of shoes.
E) decrease in both quantity demanded and quantity supplied of shoes.
Velcro
A fastening device consisting of two strips of fabric, one covered with tiny hooks and the other with a dense pile, which adhere when pressed together.
Upward-Sloping Demand
A representation typically contrary to the law of demand, suggesting that as prices increase, the quantity demanded also increases. Generally, this is indicative of Giffen or Veblen goods.
Equilibrium Price
The price at which the quantity of a good or service demanded by consumers is equal to the quantity supplied by producers, leading to market balance.
- Embrace the concept of equilibrium within markets and how changes in supply and demand result in adjustments of the equilibrium price and quantity.
- Recognize the role of production costs and factor inputs on the supply side of the market.
- Scrutinize market conditions to determine the effect of supply and demand shifts on the directional change in equilibrium price and quantity.
Verified Answer
KP
Keith PerkinsJul 20, 2024
Final Answer :
C
Explanation :
An increase in the price of Velcro, a key input in the production of kids' shoes, will lead to an increase in the cost of production for shoe manufacturers. This will shift the supply curve to the left, leading to a decrease in the equilibrium quantity of shoes. At the same time, the increase in production costs will lead to an increase in the equilibrium price of shoes. Therefore, the correct answer is C - an increase in equilibrium price but a decrease in equilibrium quantity of shoes.
Learning Objectives
- Embrace the concept of equilibrium within markets and how changes in supply and demand result in adjustments of the equilibrium price and quantity.
- Recognize the role of production costs and factor inputs on the supply side of the market.
- Scrutinize market conditions to determine the effect of supply and demand shifts on the directional change in equilibrium price and quantity.