Question

1.   A) Demand increased, though prices remained the same. Do you agree? Explain

B) How would the US PPC shift if California were to become an independent nation. Explain your answer.

Answer 1

1.

A.

I agree that demand increases, but price remains same, because demand increases due to non price factors, such as increase in income, increase in price of substitutes and or more expenses on advertising. Here, demand increases, means there is a rightward shift in the demand curve, but price does not change.

When price changes, then the quantity demanded, changes, rather the demand itself.

B.

US PPC will shift to the inward direction and output will contract, if California becomes an independent nation. It happens, because California is one of the biggest state of the USA, and it contributes a good amount of resources to the US economy. When California goes out of the USA, then USA becomes devoid of those resources, coming from California. It causes decrease in output as lower resource can only produce lower output. So, PPC curve will shift inward direction.