Chapter 1. eFigure 2.15
eFigure
Isoquants
true
true
You must read each slide, and complete any questions on the slide, in sequence.
Question 1.1
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Correct! An inward shift in demand leads to a decrease in price and a decrease in quantity. An outward shift of supply leads to a decrease in price and an increase in quantity. Both shifts lead to a decrease in price, so we know with certainty that price falls. The two shifts result in changes in quantity in opposite directions. Accordingly, we cannot identify the direction of the change in quantity. Depending on the magnitude of the shift of the two curves, the new equilibrium quantity may be larger, smaller or equal to the initial quantity.
Incorrect. An inward shift in demand leads to a decrease in price and a decrease in quantity. An outward shift of supply leads to a decrease in price and an increase in quantity. Both shifts lead to a decrease in price, so we know with certainty that price falls. The two shifts result in changes in quantity in opposite directions. Accordingly, we cannot identify the direction of the change in quantity. Depending on the magnitude of the shift of the two curves, the new equilibrium quantity may be larger, smaller or equal to the initial quantity.
Question 1.2
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Correct! The inward shift in supply leads to an increase in price and a decrease in quantity. The inward shift of demand leads to a decrease in price and a decrease in quantity. Since the equilibrium quantity decreases with both shifts, we can definitively identify the change in quantity as a decrease. Depending on the magnitude of the shift of the two curves, the new equilibrium price may be higher, lower or equal to the initial price. For example, if the inward shift in supply were very small, the new equilibrium price would be lower than the initial price.
Incorrect. The inward shift in supply leads to an increase in price and a decrease in quantity. The inward shift of demand leads to a decrease in price and a decrease in quantity. Since the equilibrium quantity decreases with both shifts, we can definitively identify the change in quantity as a decrease. Depending on the magnitude of the shift of the two curves, the new equilibrium price may be higher, lower or equal to the initial price. For example, if the inward shift in supply were very small, the new equilibrium price would be lower than the initial price.
Question 1.3
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Correct! In order for the two shifts to result in an increase in quantity, the supply curve could shift inward or outward. However, for the price to rise with certainty, the supply curve must shift inwards. The important element here is really the magnitude of the shifts. Modest shifts of the supply curve, either inward or outward, still result in an increase in quantity.
Incorrect. In order for the two shifts to result in an increase in quantity, the supply curve could shift inward or outward. However, for the price to rise with certainty, the supply curve must shift inwards. The important element here is really the magnitude of the shifts. Modest shifts of the supply curve, either inward or outward, still result in an increase in quantity.
Question 1.4
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Correct! This statement is false. Our general rule holds in the case of parallel shifts of linear curves as well. This is something that you can easily prove to yourself with a few sketches of shifting curves.
Incorrect. This statement is false. Our general rule holds in the case of parallel shifts of linear curves as well. This is something that you can easily prove to yourself with a few sketches of shifting curves.