Question

Consider the market for pens. Suppose that a new educational study has proven that the practice of writing, erasing, and rewriting improves students' ability to process information, leading parents to steer away from pen use in favor of pencils. Moreover, the price of plastic, an important input in pen production, has increased considerably.

Answer 1

Answer: Quantity of pens fall, Change in price ambiguous

Explanation:

The new educational study has proven that the practice of writing, erasing, and rewriting improves students' ability to process information, leading parents to steer away from pen use in favor of pencils. This will lead to a fall in the demand for pens, shifting its demand curve to the left.

Moreover, the price of plastic, an important input in pen production, has increased considerably. This will increase the cost of production of pens, inducing producers to reduce pen supply in the market. The supply curve shifts up to the left.

Both these shifts lead to a fall in the quantity of pen in the market. However, the effect on price cannot be determined as it depends on the magnitude of the two shifts.