Question

Antonio is skilled at making both earrings and bracelets. Antonio has no preference between making earrings or bracelets since he earns the same amount from the two activities. If the selling price of bracelets decreases from $40 to $20, then Antonio's opportunity cost of making earrings and making earrings is now profitable than making bracelets.

Suppose that the earrings market consists of several suppliers like Antonio who are skilled at making both earrings and bracelets. Which of the following is likely to happen to the supply curve of earrings when the price of a bracelets decreases?
a. It shifts to the right
b. It shifts to the left
c. It does not change

Answer 1

a. It shifts to the right

Explanation:

If all suppliers of earring and bracelets are like Antonio, which means that they have no preference between making one or another (since they earn the same amount form both) and bracelet price decreases, then suppliers will like to do more earrings because they will earn more ($40 instead of $20).

If all suppliers decide to do more earrings, for each price there would be more quantity supplied. This will lead to an increase in the earrings supply, which looks (in the demand and supply graph) as a shift to the right of the supply curve.