S.
Klepper, Economics
73-100, Fall 2008
Solution to Quiz 5
If
the price of imported textiles rises and imported textiles are imperfect
substitutes for U.S.
textiles, then the demand for U.S.
textiles must rise at every price, causing the market demand curve for U.S. textiles
to shift to the right. The rise in the
price of imports has no effect on the costs of U.S. textile producers and thus has
no effect on the market supply curve.
The short-run effect of the shift in the market demand curve from D0
to D1 is pictured below. Both
price and output rise from p0 and q0 to p1 and
q1 respectively, causing total expenditures, which equal price times
quantity, to rise.
Based
on this description, the answers to the individual questions are:
_____1.
False
_____2. True
_____3.
False
_____4. True
_____5. True