Refer to the above graph.What will shift D₁ to D₂? A) A decrease in productivity B) An increase in product demand C) An increase in the price of complementary input D) A decrease in the price of a substitute input (if the substitution effect is greater than the output effect)

Question

Quizplus · Accepted Answer

D₁ represents the initial equilibrium point between demand and supply. An increase in product demand (shift of the demand curve to the right) will shift the equilibrium point to a higher price (D₂) and higher quantity. Therefore, choice B is the correct answer. A decrease in productivity (shift of the supply curve to the left), an increase in the price of complementary input (shift of the supply curve to the left), and a decrease in the price of a substitute input (if the substitution effect is greater than the output effect) (shift of the supply curve to the right) will all shift the equilibrium point, but the direction of the shift and the impact on price and quantity will depend on the magnitude of the shift and the elasticities of demand and supply.

Refer to the Above Graph