Answer: Quantity of pens fall, Change in price ambiguous
Explanation:
The new educational study has proven that the practice of writing, erasing, and rewriting improves students' ability to process information, leading parents to steer away from pen use in favor of pencils. This will lead to a fall in the demand for pens, shifting its demand curve to the left.
Moreover, the price of plastic, an important input in pen production, has increased considerably. This will increase the cost of production of pens, inducing producers to reduce pen supply in the market. The supply curve shifts up to the left.
Both these shifts lead to a fall in the quantity of pen in the market. However, the effect on price cannot be determined as it depends on the magnitude of the two shifts.
Please find attached the required diagram.
As a result of the new educational study, there would be a decrease in the demand for pens as students' would prefer pencils. This would lead to a leftward shift of the demand curve. As a result equilibrium price and quantity would reduce.
As a result of the increase in the price of plastic, it would become more expensive to make pens. As a result, there would be a decrease in the supply of pens. The supply curve would shift to the left. This would lead to an increase in equilibrium price and a decrease in equilibrium quantity.
Here is the complete question: Consider the market for pens. Suppose that a new educational study has proven that the practice of writing, erasing, and rewriting improves students' ability to process information, leading parents to steer away from pen use in favor of pencils. Moreover, the price of plastic, an important input in pen production, has increased considerably. On a graph, labeled Scenario 1, indicate the effect these two events have on the demand for and supply of pens.
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