Question

Read the statement below carefully, and decide whether it is true or false. And then explain your answer (whether “true “ or “false”).

If sellers of widgets expect price to go down soon, and they act on those expectations now, then their actions will cause the price of widgets to fall now. Explain your answer by describing what happens in the S&D market-graphs for widgets.

Answer 1

Answer : The answer is True.

If sellers expect that the price will fall in near future then sellers try to sell more now. To sell more at current price level the market supply increase. As a result, the market supply curve shift to rightward and the price level fall now. In the following picture's diagram the supply curve shifts to rightward now as sellers increases the market supply to sell more at current price level. The new supply curve is S". As a result, the new equilibrium the price level falls from P to P1. Therefore, the given statement is true.