S. Klepper, Economics 73-100, Fall 2011


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