Question

3. A new medical study reports that washing your hair everyday increases the probability of baldness. If price stays the same would that be equilibrium? Why or why not? What will eventually happen in the market? What happens to equilibrium price and quantity? Which quantity is affected and how do you know? Illustrate using S/D graph the effects of this report on the market for shampoo.

4. Suppose that the government creates a new subsidy for producers of smoke detectors. If price stays the same would that be equilibrium? Why or why not? What will eventually happen in the market? What happens to equilibrium price and quantity? Which quantity is affected and how do you know? Explain using a graph how this will impact the market for smoke detectors.

Answer 1