9. Opportunity cost Aa Aa Sam is skilled at making both beaded earrings and brac

Question

9. Opportunity cost Aa Aa Sam is skilled at making both beaded earrings and bracelets. Sam has no preference between making earrings and bracelets since he earns the same amount from the two activities. If the selling price of a bracelet decreases from $40 to $20, then Sam's opportunity cost of making earrings and making earrings is now profitable than making bracelets. Suppose that the earrings market consists of several suppliers like Sam who are skilled at making both bracelets and earrings. Which of the follwing is likely to happen to the supply curve of earrings when the price of a bracelet decreases? O It does not change O It shifts up and to the left O It shifts down and to the right

Explanation / Answer

Before the fall in price, both bracelets and earrings sell at a price of $40.

Iff the selling price of bracelets decreases to $20, then Sam's opportunity cost of making earrings which is the price of the next best alternative i.e. bracelet is $20, and so making earrings is now more profitable than making bracelets.

When the price of bracelets decreases, more suppliers are willing to supply earrings because earrings give higher profits to the suplier now. Hence the supply curve of the earrings will shift down and to the right.

Related Questions

Navigate

• Browse (All)
• Browse 9
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.