Assume the cost of certain inputs used to produce artificial Christmas trees increases and,at the same time,the economy moves into a recession,causing the incomes of consumers to decrease.Which of the following will happen to the equilibrium price and quantity of artificial Christmas trees? (Assume artificial Christmas trees are normal goods.)

Question

Quizplus · Accepted Answer

If the cost of inputs used to produce artificial Christmas trees increases, the supply curve will shift to the left because producing artificial Christmas trees becomes more expensive. At the same time, if the economy moves into a recession, the demand for artificial Christmas trees will decrease, causing the demand curve to shift to the left as well. The simultaneous shift in both the supply and demand curve will lead to a decrease in the equilibrium quantity of artificial Christmas trees. However, the effect on price cannot be determined without additional information. It is possible that the increase in production costs could lead to a higher price, while the decrease in demand due to the recession could lead to a lower price. Therefore, the best answer is D - quantity will decrease, and price cannot be determined.

Assume the Cost of Certain Inputs Used to Produce Artificial