Question

An article in the Wall Street Journal in early 2001 noted two developments in the market for laser eye surgery. The first development concerned side effects from the surgery, including blurred vision. The second development was that the companies renting eye- surgery machinery to doctors had reduced their charges. In the market for laser eye surgeries, these two developments

1. decreased demand and decreased supply, resulting in a decrease in the equilibrium quantity and an increase in the equilibrium price of laser eye surgeries.2. decreased demand and increased supply resulting in an increase in both the equilibrium quantity and the equilibrium price of laser eye surgeries.3. decreased demand and increased supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries.4. decreased demand and increased supply, resulting in a decrease in both the equilibrium price and the equilibrium quantity of laser eye surgeries.

Answer 1

The correct answer is option 3.

Explanation:

The side effects of laser eye surgery such as blurred vision would have an adverse effect on the demand for laser surgery. The demand will decrease. This will cause the demand curve to shift to the left.

A reduction in the rent for eye-surgery machinery will reduce the cost of eye surgery. The doctors will be able to provide more surgeries at the same cost. This will cause an increase in the supply of surgery. The supply curve will move to the right.

These changes in demand and supply will cause a reduction in the equilibrium price of eye surgery. The change in equilibrium quantity will depend on the extent of change in demand and supply.