When manufacturers who use plastic as an input have access to cheaper plastic, what will this mean for the market for their product? Which curve shifts - demand or supply (or both) - and in which...

When manufacturers who use plastic as an input have access to cheaper plastic, what will this mean for the market for their product? Which curve shifts - demand or supply (or both) - and in which direction? What happens to equilibrium price & quantity?

Asked on by lmmcg

1 Answer | Add Yours

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

When manufacturers who use plastic as an input get access to cheaper plastic, the supply of their products increases.  There is no reason that the drop in the price of plastic will have any effect on demand.  If supply goes up, the equilibrium price will (all other things being equal) go down while the equilibrium quantity goes up.

The supply of a product can be defined as the amount of that product that producers will be willing and able to sell at a given sale price.  When the price of inputs (such as the plastic in this question) goes down, producers are able to make the same product for less money.  When this happens, they will make a higher profit at any given sale price.  If they can make more money selling the product at any given price, they will produce more of the product.  This will mean that supply will increase and the supply curve will move to the right.

There will be no reason for the demand curve to move.  Demand is defined as the amount of a good or service that consumers are willing and able to buy at a given price.  The price of the inputs has no bearing on how much the consumers want to buy at a given price.  Therefore, this change in the price of plastic will not affect demand.

If supply increases and demand does not change, the equilibrium quantity rises and the equilibrium price falls.

We’ve answered 318,915 questions. We can answer yours, too.

Ask a question