Econ 545

1. Question :

(TCO A) There is an increase in the cost of materials for producing bicycles.

(4 pts.) What happens to bicycle supply?

(6 pts.) What happens to bicycle demand?

Student Answer: When there is an increase in the cost of materials for producing bicycles the supply curve will shift left and the cost will increase. And when the price increases the bicycle demand may fall because since its now costing more to produce manufactures may not want to spend more money so they may cut production to help save some money. Which may then cause prices to raise because the supply would be down but the demand may have remained the same.

Instructor Explanation: Since a change in costs to produce the product is a supply factor, an increase in costs would be expected to decrease bicycle...