Consider the market for pens. Suppose that the number of students with an allerg
ID: 2427536 • Letter: C
Question
Consider the market for pens. Suppose that the number of students with an allergy to pencil erasers continues to rise, causing more students to switch from pencils to pens in school. Moreover, the price of plastic, an important input in pen production, has dropped considerably. On the following graph, labeled Scenario 1, indicate the effect these two events have on the demand for and supply of pens. Next, complete the following graph, labeled Scenario 2, by shifting the supply and demand curves in the same way that you did on the Scenario 1 graph. Compare both the Scenario 1 and Scenario 2 graphs. Notice that after completing both graphs, you can now see a difference between them that wasn't apparent before the shifts because each graph indicates different magnitudes for the supply and demand shifts in the market for pens.Explanation / Answer
The situation says that the students are switching from pencils to pens. Therefore the demand of pens is rising. Due to the reduction in the price of the plastic which is an important input in the pen the price of the pen will also fall down. This is a theory which states when there is more demand, the supply will increase because of the price of the product will reduce.i.e These are the two different scenarios on the graph which have to be plotted taking numbers.
Demand Rises = Price Fall
Demand falls = Price Rises