Question

Consider the market for pens. suppose that the number of students with an allergy to pencil erasers increases, 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.

Answer 1

Answer:

According to the supply and demand theory, if the demand for the pens increases the price will go up as well. Users may continue to purchase the products sine the allergy to pencil erasers persists and there is no other substitute that may satisfy the same need. In terms of costs, as the plastic prices are decreasing, it implies that the costs of producing a unit of pens will be lowered which implies more revenue for the company under the same situation.

Answer 2

These two events will have an effect on the equilibrium quantities of the market for pens. The equilibrium quantities will increase explicitly While the price change will also increase given that the number of pens demanded increase and the cost of pens dropping.