In the fictional market of Econoville, a sudden scarcity of raw materials used in the production of gadgets occurs due to a global supply chain disruption. As a result, what is likely to happen in the Econoville gadget market?

Question

The equilibrium price will increase
The equilibrium price will decrease.
The quantity supplied will increase.
1LEVEL 2OF 5In

Answer 1

In the fictional market of Econoville, a sudden scarcity of raw materials used in the production of gadgets will likely lead to an increase in the equilibrium price of gadgets. Here's the reasoning:

1. Reduction in Supply: The scarcity of raw materials means that producers cannot manufacture gadgets at the same capacity as before. This leads to a leftward shift in the supply curve.

2. Impact on Equilibrium: With a decrease in supply and demand remaining constant, the equilibrium price of gadgets will increase because consumers will be willing to pay more for the limited goods available, while the quantity supplied decreases.

Thus, the correct statement is: The equilibrium price will increase.