Assume the market for pencils is competitive and originally in equilibrium.As a result of an increase in the price of graphite,the supply of pencils decreases.What is true of the new equilibrium?
A)The price is higher while the quantity exchanged decreases.
B)The price is higher and the quantity exchanged increases.
C)The price is lower and the quantity exchanged decreases.
D)The price is lower while the quantity exchanged increases.

Question

Quizplus · Accepted Answer

An increase in the price of graphite, a key input in pencil production, will increase the cost of producing pencils. This increase in cost will lead to a decrease in supply which will shift the supply curve to the left. This decrease in supply will cause the equilibrium price to increase and the equilibrium quantity to decrease. Therefore, the new equilibrium will have a higher price and lower quantity exchanged, as noted in option A.

Assume the Market for Pencils Is Competitive and Originally in Equilibrium.As