Suppose That We Are in a Condition of "Stuck" Prices

question 11

Essay

Suppose that we are in a condition of "stuck" prices so that the price of nails will not go above or below $2/kg.Further suppose that nail factories have been built on a business plan designed to deliver 6,000 kg/week.How many nails will be sold in a market in which demand (which includes a modest amount of inventory) is characterized by: (a) P = 5 - 0.5Q, (b) P = 6 - 0.5Q, and (c) P = 4 - 0.5Q, where P is in $/kg and Q is in thousands of kg/week? In each case, what happens to inventory.

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Definitions:

Price of Good

The amount of money required to purchase a specific product or service.

Affordable Consumption Options

Economically accessible choices available to consumers for goods and services within their budget constraints.

Indifference Curves

A graph representing different bundles of goods between which a consumer is indifferent, showing preferences and trade-offs.

Substitution Effect

The change in consumption patterns due to a change in relative prices, leading consumers to substitute a product with a cheaper alternative.