Holding the nonprice determinants of supply constant, a change in price would a. result in either a decrease in supply or an increase in supply. b. have no effect on the quantity supplied. c. result in a shift of demand. d. result in a movement along a stationary supply curve.

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Talon Meza

Business

14 November, 09:44

Holding the nonprice determinants of supply constant, a change in price would a. result in either a decrease in supply or an increase in supply. b. have no effect on the quantity supplied. c. result in a shift of demand. d. result in a movement along a stationary supply curve.

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Simeon · Answer 1

The correct answer is d. result in a movement along a stationary supply curve.

Explanation:

The price effect is the change in the quantity demanded of a good (or service) when its price is modified, while the rest of the variables remain constant (other prices, income or preferences among others).

When the price of a good changes, the conditions in which a particular consumption basket was chosen change. Given the above, the consumer will have to reevaluate his choice and will probably have to vary the quantity demanded of the goods that make up his shopping basket.

Thus, for example, if the price of one of the goods falls, the consumer sees his budgetary restriction modified and can look for a new optimum in a higher indifference curve. On the contrary, if the price of one of the goods increases, the budget line changes but now the consumer can only aspire to a lower indifference curve. In addition, given a price change, the relative prices of goods also change.