Good X is produced in a competitive market using input A. Explain what would hap

Question

Good X is produced in a competitive market using input A. Explain what would happen to the supply of good X in each of the following situations.

a.   The price of input A decreases.

Hint:

1.    Draw the demand and supply curves. Label each curve and identify the initial points (D0, So , E0 ,  P0 and Q0 ).

2.    Now, show which curve (demand or supply) will be affected if the input cost of A decreases and why? Is it the demand or the supply and label accordingly (D1, or S1 ).

3.    What is the new equilibrium? Label as P1, Q1 and  E1  

4.    Give an interpretation as to the new price (higher or lower) and the new equilibrium quantity (higher or lower). Review the topic on Comparative statistics.

Explanation / Answer

One standard definition for economics is the study of the production, distribution, and consumption of goods and services. A second definition is the study of choice related to the allocation of scarce resources. The first definition indicates that economics includes any business, nonprofit organization, or administrative unit. The second definition establishes that economics is at the core of what managers of these organizations do.

This book presents economic concepts and principles from the perspective of

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