Suppose that the garden gnome industry was in long-run equilibrium given the circumstances described Suppose, that it was discovered to everyone's surprise on January 1, 1993, after it was too late to change orders for gnome molds, that the cost of the plaster and labor needed to make a gnome had changed to $6.If the demand curve does not change, what will happen to the equilibrium price of gnomes?

Question

Quizplus · Accepted Answer

If the demand curve does not change and the industry was in long-run equilibrium, an increase in the cost of production (plaster and labor) would lead to a decrease in supply. However, the question does not provide enough information to determine the exact change in equilibrium price. The equilibrium price could change, but without specifics on how demand and supply curves react to the cost change, we cannot determine the direction or magnitude of the price change. Therefore, none of the provided options (A, B, D, E) which suggest a specific change in price can be correct, leaving C (stays constant) as the best answer given the information provided, although in real scenarios, the price is likely to adjust to reflect the increased costs.

Suppose That the Garden Gnome Industry Was in Long-Run Equilibrium