Question

Sometimes word of mouth and expert recommendations cause a product to become more popular. However, the firm that produces this product may find it difficult to get parts to increase production, and it might have to pay higher prices to receive an adequate supply of parts.

In this case, what will happen to the future price of the product? Choose one:

A. The equilibrium price should rise as the supply curve shifts to the left and the demand curve shifts to the right
B. The equilibrium price should fall as the supply curve shifts to the right and the demand curve shifts to the left.
C. The equilibrium price does not change as the supply curve shifts to the left and the demand curve shifts to the right.
D. The equilibrium price changes in an unknown direction as the supply curve shifts to the left and the demand curve shifts to the right.

Answer 1

Answer: The correct answer is "A. The equilibrium price should rise as the supply curve shifts to the left and the demand curve shifts to the right ".

Explanation: In this case the equilibrium price should rise as the supply curve shifts to the left and the demand curve shifts to the right .

Word of mouth and the recommendations of experts that make the product more popular, causes demand to shift to the right (increasing), and the fact that producing more units of this product to increase production can increase Costs cause the offer to shift to the left (decrease). As a consequence the equilibrium price increases.