Question

Suppose that due to more stringent environmental regulation it becomes more expensive for paper production firms to operate. Also, recent technological advances in digital use have reduced the demand for paper products. Use Supply and Demand analysis to predict how these shocks will affect equilibrium price and quantity of paper. Can we say with certainty that the market price for paper will fall

Answer 1

We cannot say with a certainty that the market price of paper would fall

equilibrium quantity falls and there is an indeterminate effect on equilibrium price

Step-by-step explanation:

As a result of the regulation, the supply of paper would reduce. this would lead to a leftward shift of the supply curve. Price increases and quantity falls

As a result of the technological advances, the demand for paper reduces. this would lead to a leftward shift of the demand curve. Price and quantity falls

Taking these two effects together, equilibrium quantity falls and there is an indeterminate effect on equilibrium price