Question

Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils rises, consumers experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to rise in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers increase?

Answer 1

Answer: Equilibrium price rises.

Explanation:

(a) Pen and pencil are substitute goods. So, if the price of pencil increases the demand for pens increases which shifts the demand curve rightwards and hence, equilibrium price rises.

(b) There is a direct relationship between the income of an individual and demand for normal goods. If there is an increase in the income of the consumer as a result demand also increases which increases the equilibrium prices.

(c) Writing in ink becomes fashionable, people expect the price of pens to rise in the near future and the population increases will lead to increases the demand for pens which which shifts the demand curve rightwards and hence, equilibrium price rises.

(d)  Wages of pen-makers increase will increase the cost of production and hence increases the equilibrium price of pens.