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