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The Widget Industry

The widget industry in Springfield is competitive, with numerous buyers and sellers.
Consumers don't differentiate among the various brands of widgets (no product differentiation).
The industry demand curve is given by:
Qd = 998 - 5Pw + 4 Y - 6Pg
And the industry supply curve is given by
Qs = +15Pw - 3 Wage
Where Pw represents the price of widgets, Pg is the price of gasoline, Y is disposable personal income in Springfield, and Wage is wages paid to workers in widget factories.
Currently, Y= $10, Pg = $3, and Wage = $20.
Suppose Springfield's economy moves into a recession and Y falls to $9 and rising unemployment allows widget makers to reduce wages to $18 per hour. What happens to the equilibrium price and quantity?

Choose the appropriate answer below:

a. Equilibrium price rises; the effect on equilibrium quantity is uncertain.

b. Equilibrium quantity rises; the effect on equilibrium price is uncertain.

c. Equilibrium price falls; the effect on equilibrium quantity is uncertain.

d. Equilibrium quantity falls; the effect on equilibrium price is uncertain.

e. Nothing happens to the market equilibrium price or quantity.

The widget industry in Springfield is competitive, with numerous buyers and sellers.
Consumers don't differentiate among the various brands of widgets (no product differentiation).
The industry demand curve is given by:
Qd = 998 - 5Pw + 4 Y - 6Pg
And the industry supply curve is given by
Qs = +15Pw - 3 Wage
Where Pw represents the price of widgets, Pg is the price of gasoline, Y is disposable personal income in Springfield, and Wage is wages paid to workers in widget factories.
Currently, Y= $10, Pg = $3, and Wage = $20.
Suppose Springfield's economy moves into a recession and Y falls to $9 and rising unemployment allows widget makers to reduce wages to $18 per hour. What happens to the supply and demand curves?

Choose the appropriate answer below:

a. The demand curve shifts to the left and the supply curve shifts to the right.

b. The demand curve shifts to the left and the supply curve shifts to the left.

c. The demand curve shifts to the right and the supply curve shifts to the right.

d. The demand curve shifts to the right and the supply curve shifts to the left.

e. Neither the supply nor demand curve shifts.

Solution Summary

The document attached includes the correct answers along with the explanations for choice.

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