Question

Consider the market for pens. Suppose that the number of students with an allergy to pencil erasers increases, causing more students to switch from pencils to pens in school. Moreover, the price of ink, an important input in pen production, has increased considerably.

Answer 1

This is a situation where there is an inadequate increase in equilibrium quantities, which causes an ambiguous imbalance in equilibrium prices.

Step-by-step explanation:

As seen in the question above, students stopped buying pencils, due to their allergy to rubbers, and started to buy pens. This causes a change in the balance between these two products, this change was not made by factors such as scarcity or better quality, but because of the students' allergy, which shows that the change in balance was made in an unequivocal manner.

However, there are many students who still buy the pencils, and the ink from the pens comes at a high price. This causes the change in the equilibrium price of these products to be ambiguous because demand and supply may fall or rise together, not allowing a forecast of price changes.