Question

Suppose the market for kids' shoes is initially in equilibrium. For a given upward-sloping supply curve, other things being equal, an increase in the price of Velcro which is used as fasteners for kids' shoes will result in a(n):

a. decrease in both quantity demanded and quantity supplied of shoes

b. decrease in equilibrium price but an increase in equilibrium quantity of shoes

c. increase in both quantity demanded and quantity supplied of shoes

d. increase in both equilibrium price and quantity of shoes

e. increase in equilibrium price but a decrease in equilibrium quantity of shoes

Answer 1

An increase in the price of Velcro will result in a decrease in equilibrium price but an increase in equilibrium quantity of shoes. Therefore, the correct option is B.

Step-by-step explanation:

An increase in the price of Velcro, which is used as fasteners for kids' shoes, will result in a decrease in equilibrium price but an increase in equilibrium quantity of shoes. This is because the increase in price of a key input like Velcro will lead to higher production costs for shoe manufacturers. As a result, fewer shoe manufacturers will be able to supply shoes at the current equilibrium price, causing a decrease in supply. However, the increase in price will incentivize producers to supply a larger quantity of shoes.