The following diagram depicts the competitive market for hats before and after a
demand shift. Based on this information, which of the following statements is
correct? (UCL-J16-Q13-01)
Figure 6: Demand and supply of hats
? 1) After the fall in demand, the market initially moves from A towards E, before
settling to the new equilibrium at F.
2) At E, lowering the price to $7 results in a Nash equilibrium for the buyers and
sellers.
3) In the adjustment process from E to the new market equilibrium F, the sellers
behave as price-makers while the buyers remain price-takers.