Pens are normal goods. What will happen to the equilibrium price of pens if the prices of pencils falls, consumers experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to fall in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers decrease?

Question

Quizplus · Accepted Answer

Each of the given factors has an ambiguous effect on the equilibrium price of pens.

- If the price of pencils falls, some consumers may switch from using pens to pencils, leading to a decrease in demand for pens and a decrease in price. On the other hand, if pens and pencils are substitutes, the decrease in the price of pencils may increase the demand for pens, leading to an increase in price.
- An increase in income generally leads to higher demand for normal goods, such as pens. This may push the price up. 
- If writing in ink becomes fashionable, the demand for pens may increase, leading to an increase in price. 
- If people expect the price of pens to fall in the near future, they may postpone their purchases, leading to a decrease in demand and a decrease in price. 
- An increase in population generally leads to higher demand for most goods, including pens. This may push the price up. 
- If fewer firms manufacture pens, this may decrease the supply of pens and lead to an increase in price. 
- If the wages of pen-makers decrease, the cost of producing pens may decrease, leading to an increase in supply and a decrease in price.

Therefore, the effect of these factors on the equilibrium price of pens is ambiguous, and the answer is D.

Pens Are Normal Goods