Assume that springfields economy moves into a recession and

Reference no: EM13477675

The widget industry in Springfield is competitive, with numerous buyers and sellers. Consumers don't differentiate among the various brands of widgets (no product differentiation). The industry demand curve is given by: Qd = 998 - 5Pw + 4 Y - 6Pg And the industry supply curve is given by Qs = +15Pw - 3 Wage Where Pw represents the price of widgets, Pg is the price of gasoline, Y is disposable personal income in Springfield, and Wage is wages paid to workers in widget factories. Currently, Y= $10, Pg = $3, and Wage = $20.

Suppose Springfield's economy moves into a recession and Y falls to $9 and rising unemployment allows widget makers to reduce wages to $18 per hour. What happens to the equilibrium price and quantity?

a) Equilibrium price rises; the effect on equilibrium quantity is uncertain.

b) Equilibrium quantity rises; the effect on equilibrium price is uncertain.

c) Equilibrium price falls; the effect on equilibrium quantity is uncertain.

d) Equilibrium quantity falls; the effect on equilibrium price is uncertain.

e) Nothing happens to the market equilibrium price or quantity.

Reference no: EM13477675

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