Question

What should happen to the equilibrium price of whoopee cushions when the price of the rubber necessary to make the cushions declines?

Answer 1

Answer: B) The equilibrium price will fall.

Explanation: When production costs are reduced (as when the costs of materials decrease), suppliers are willing to produce more or sell at a lower price. This will cause the equilibrium price to fall.

Answer 2

Rubber is an input for the production of the cushions.

If the price of the input decreases, the final cost of the product is lower, so the sale price may decrease.

Recalling that the equilibrium price is given through the interaction between supply and demand for a product. If price decreases, the demand for the product increases until this interaction finds a new break-even point.