Assume that an economy producing two products, skateboards and in‐line skates, is initially in equilibrium, and that skateboards and in‐line skates are substitutes. If consumer preferences shift away from skateboards and toward in‐line skates, which of the following will NOT occur?

Question

Quizplus · Accepted Answer

If consumer preferences shift away from skateboards and toward in-line skates, then the demand for skateboards will decrease, causing firms producing skateboards to incur losses in the short run. Similarly, firms producing in-line skates will earn profits in the short run due to the increase in demand. In the long run, additional capital will flow into in-line skates production to meet the increased demand. However, there is no reason for additional capital to flow into skateboard production in the long run as the demand for skateboards is decreasing. Thus choice D is the correct answer.

Assume That an Economy Producing Two Products, Skateboards and In‐line