Question

(01.05 hc)
use the graph to answer the question that follows.

public domain
the graph illustrates a change in the market for plush toys. which statement could explain the graph?
the demand for plush toys increased due to a celebrity endorsement. the market price and quantity increased.
the demand for plush toys increased due to a large increase in the birthrate. the market price and quantity decreased
the demand for plush toys decreased due to an increasing incidence of polyester allergy. the market price and quantity increased
the demand for plush toys decreased due to increasing costs of manufacturing and distribution. the market price and quantity decreased

Explanation:

Step1: Analyze the graph

The demand curve shifts from \(D_1\) to \(D_2\) (right - ward shift). A right - ward shift in the demand curve indicates an increase in demand. When demand increases (assuming supply is constant), the equilibrium price and quantity increase.

Step2: Evaluate each option

• Option 1: If the demand for plush toys increased due to a celebrity endorsement (a non - price determinant of demand), it would cause a right - ward shift in the demand curve. As a result, the market price (\(P_1\) to \(P_2\)) and quantity (\(Q_1\) to \(Q_2\)) would increase. This is consistent with the graph.
• Option 2: If demand increased (right - ward shift), price and quantity should increase, not decrease. So this option is incorrect.
• Option 3: A decrease in demand (left - ward shift) would lead to a decrease in price and quantity. This option is incorrect as it claims price and quantity increase with a decrease in demand.
• Option 4: Increasing costs of manufacturing and distribution affect the supply curve (left - ward shift of supply). But the graph shows a shift in the demand curve. Also, if supply decreases (left - ward shift of supply), price increases and quantity decreases. This option is incorrect.

Answer:

The demand for plush toys increased due to a celebrity endorsement. The market price and quantity increased.