Question

Explain how each of the following events affects the market equilibirium quantity and price of jeans. Be sure to specify how these events affect the demand or supply curve, if at all. (An example of an answer would be the "supply curve moves down and to the right, increasing the equilbrium quantity and decreasing equilibrium price of jeans")

(1) A new technology becomes available that cuts the time it takes to manufacture a pair of jeans by 50%

(2) The price of cloth (denim) used to make jeans falls (3) Jeans go out of fashion

(4) The price of a pair of jeans falls

(5) The wage rate paid to garment workers increases

Answer 1

1) A new technology reduces time and reduces cost which leads to increase in quantity production at each price level and thus supply curve shifts right and down leading to decrease in price and increase in quantity.

2)denim price falls leads to increase in supply which again leads to decrease in price and increase in quantity.

3)jeans go out of fashiom means demand for jeans decreases.thus demand curve shifts leftward leading to decrease in price and decrease in quantity.

4)price of pairs of jeans falls which keeps demand curve and supply curve same.

5) wage rate increases due to which cost of production increases and supply curve decreases and shifts to leftward leading to decrease in quantity and increase in price.