Figure 3-8
-Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D₁ and S₁(point A) . If there is an increase in the wages of motorcycle workers and an increase in the price of motorcycle insurance, a complement to motorcycles, the equilibrium could move to which point?

Question

Figure 3-8

-Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D₁ and S₁(point A) . If there is an increase in the wages of motorcycle workers and an increase in the price of motorcycle insurance, a complement to motorcycles, the equilibrium could move to which point?

Quizplus · Accepted Answer

An increase in wages raises production costs, shifting the supply curve left (S1 to S2). An increase in the price of a complement (motorcycle insurance) decreases demand, shifting the demand curve left (D1 to D2). The new equilibrium is at point E, where the new supply and demand curves intersect.