Question

The market for chewing gum is in equilibrium with a current price of 50 cents per pack and a quantity of 100,000 packs per day. Which of the following events is most likely to result in a new equilibrium price of 75 cents and a new equilibrium quantity of 125,000 packs, the supply curve for chewing gums remaining unchanged?

Answer 1

Answer:

A) an increase in the price of other kinds of candy

Explanation:

If the price of substitute products (other types of candy) increases, then the suppliers of chewing gum can increase their price without the quantity demanded decreasing. If the decrease in the price of chewing gum is smaller than the increase in the price of substitute products, the quantity demanded will increase.

If there was a price increase of the main ingredients used to produce chewing gum, then the supply curve would shift to the left (option B is wrong).

If the workers signed an agreement that lowered their wages, then the supply curve would shift to the right (option C is wrong).

A decrease in the number of young people in the market would decrease the quantity demanded for chewing gum, which in turn would decrease the equilibrium price (option D is wrong).

A decrease in income would also decrease the quantity demanded, which would in turn decrease the equilibrium price (option E is wrong).