In the market for running shoes, suppose the cost of rubber used in their production rises, while at the same time the popularity of running as a sport increases. If the latter effect is stronger in magnitude, what is the change in equilibrium price and quantity?

Question

Quizplus · Accepted Answer

The increase in the cost of rubber would normally lead to a decrease in supply (shifting the supply curve to the left), potentially increasing prices and decreasing quantity. However, the increase in popularity of running increases demand (shifting the demand curve to the right), which tends to increase both price and quantity. If the increase in demand due to running's popularity is stronger than the decrease in supply due to the higher cost of rubber, both equilibrium price and quantity will rise.

In the Market for Running Shoes, Suppose the Cost of Rubber