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Consider the market supply of donuts

Economics Dec 08, 2020

Consider the market supply of donuts. Indicate whether the following events will cause a movement along the supply curve for donuts or a shift of the supply curve for donuts, holding all else constant.

A. a change in technology that makes it less costly to produce donuts

B. a change in expectations about the future price of donuts

C. An increase in the price of donuts

Expert Solution

A. A Change in technology that makes it less costly to produce donuts:

A change in technology which makes it less costly to produce donuts, will lead to decrease in cost of production of donuts. The producers as a result, will be able to supply greater quantities of donuts at different price levels. This will lead to a rightward shift in the supply curve, which in turn will lead to decrease in the price of the good and increase in the equilibrium quantity.

B. A change in expectations about the future prices of donuts:

A change in future expectations will lead to a shift in the supply curve. When the producers expect the future price to increase, they will reduce the supply in the current time period, so that they can increase the supply of good in future, leading to leftward shift in the supply curve. But when they expect the price to decrease, they will tend to increase the supply of the good in the market in the present time period. This will lead to a rightward shift in the supply curve.

C. An increase in price of donuts:

When the price of the donuts increases, other things remaining constant, the quantity supplied of the good will tend to increase. The increase in price of donuts will cause a movement along the supply curve and will result in expansion of supply in the market.

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