Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price,...

Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events.

a. The market for steel in the United States: Fuel efficiency regulations have reduced the use of steel in automobile production and increased the use of lighter materials such as aluminum AND import restrictions limit the amount of steel that can be imported into the United States.

b. The market for international airline tickets: Incomes decline due to a recession AND Norwegian Airlines adds more U.S. cities to its list of international flight destinations.

Solutions

Expert Solution

a) Due to restrictions and availability increased substitutes like aluminium, demand for steel will fall.

Import restrictions will lead to a fall in the supply of steel.

Initial Equilibrium is determined by the intersection of demand curve DD and SS curve at A.Equilibriumuantity is Q and Equilibrium price is P. As a result of fall in demand, demand curve shifts backward from DD to D1D1 . As a result of fall in supply, supply curve shifts backward From SS to S1S1. However fall in demand will be greater than the fall in supply. As a result of the intersection of D1D1 and S1S1 at B , Equilibrium quantity falls from Q to Q1 and Equilibrium price falls from P to P1.

2)If the question refers to demand for international airline tickets in USA

Due to the fall in income , demand for international airline tickets will fall.

As Norwegian airlines adds more US cities as flight destinations , supply of airline tickets will increase.

Initial Equilibrium is determined by the intersection of demand curve D D and supply curve SS at A. Equalibrium price is P and Equilibrium quantity is Q .

Due to the fall in demand for airline tickets, demand curve shifts to left (backward) from DD to D1D1. As a result of rise in supply, supply curve shifts to right(forward ) from SS to S1S1. How ever fall in demand will be greater than the fall in supply.

Intersection of S1S1 with D1D1 at B leads to a fall in equilibrium quantity from Q to Q1 and price from P to P1.

Rahul Sunny answered 1 month ago

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