Consider the following scenario: a new manufacturing process is introduced to make hockey skates. The new process is more efficient, lowers the cost of producing hockey skates, and allows more firms start producing hockey skates. At the same time, more individuals prefer hockey as a leisure activity and hockey league registration fees have gone down. What will happen to the equilibrium price and quantity?

Question

Quizplus · Accepted Answer

The new manufacturing process increases supply (more firms can produce at lower costs), and the growing interest in hockey increases demand. Both effects push quantity up, but their opposing effects on price (supply increase tends to lower price, demand increase tends to raise price) make the net effect on price ambiguous.

Consider the Following Scenario: a New Manufacturing Process Is Introduced