Question

C. Comparative Statics (5 pts) Draw a diagram to how the demand or supply curves (or both) will shift and what will happen to equilibrium price and quantity. Use arrows to show the direction of change. Then circle the correct choice in the following sentences.

The ore from a certain mine contains both copper and gold. When mining this ore, the mine produces both of these commodities. What happens to the market for gold from this mine when there is an increase in the demand for this mine’s copper?

Demand will shift: RIGHT/LEFT/NO SHIFT

Supply will shift: RIGHT/LEFT/NO SHIFT

Equilibrium price will RISE/FALL/UNCERTAIN CHANGE

Equilibrium quantity will RISE/FALL/UNCERTAIN CHANGE

Answer 1

The increase in demand of copper will shift the demand curve of copper to the right. The supply curve of copper will not shift, but the quantity supplied will increase. Although the price of copper at equilibrium will rise and the equilibrium quanity will decrease and the equilibrium in the economy will be restored.

On the other hand, as the demand of copper is increasing, the demand of gold will fall down and its demand curve will shift leftwards. The supply of gold will also fall and supply curve will shift to the upward or leftwards direction. The change in equilibrium price of gold cannot be calculated and it would be an uncertain change. The equilibrium output will fall as consumers wish to purchase less and sellers wish to sell less.