Exploring Adjustment 

6. Suppose the markets shown below may be described by supply and demand curves. Show what should happen in each market as a result of a sharp increase in the price of petrochemicals from which synthetic fibers are made. Add a note of explanation to each graph. (Hint: work from left to right and ignore any feedback.)


7. "If the price goes down, the seller will have to sell more to make the same profit. Hence the supply curve should have a negative slope just as the demand curve does." What is wrong with this reasoning? (Hint: What did we assume about the level of profits a firm seeks? According to this quotation, what would happen to profits if a seller sells more at the original, high price?)

7. Suppose price is at P1 in the figure below. What will the adjustment process cause to happen? Is there any difference between equilibria a and b?

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