Question

For the question below, write an explanation of the short-run effect including the determinant of AD or AS that is causing the shift, the line that shifts (AD or AS), the direction of the shift (left or right), and the impact on output and price level (increase or decrease) and submit a properly drawn and labeled aggregate demand and aggregate supply graph for the scenario. Make sure your name and assignment number are written on each page of graphs you submit. All text must be written in the text box provided. Tourists flock to visit the major theme park's in Orlando, Florida.

Please explain and draw graph

Answer 1

  

In the short run, the number of major theme parks in Orlando remains fixed at any price. Hence the aggregate supply curve(AS) is vertical in the short run.

Initially when AD1 is the aggregate demand curve, the equilibrium is at point E with Y0 number of theme parks at P1 price.

When tourists flock to visit the theme parks, the aggregate demand for the parks increase, shifting AD curve to the right. The determinant causing the AD shift can be any of the following-

1)The income of consumers visiting the park increase

2)The price of the substitute parks increase, leading to fall in the relative price of the parks in Orlando.

3)The taste or preferences of the consumer turns favourable to the Orlando parks.

The impact of rightward shift of AD1 curve to AD2 is an increase in price of parks from P1 to P2. The number of theme parks remain unchanged at Y0.