Use supply and demand curves to illustrate how each of the following events would affect the...

Use supply and demand curves to illustrate how each of the following events would affect the price and quantity of snow shovels bought and sold:

a. An increase in the price of snow blowers.

b. An unseasonably warm winter.

c. An increase in the average income level (assume snow shovels are an inferior good, and snow blowers are a normal good).

Solutions

Expert Solution

In the graph below:

DD is the initial demand curve

SS is the initial supply curve

E* is the equilibrium point.

P* is the initial equilibrium price

Q* is the equilibrium quantity

a. An increase in the price of snow blowers:

Snow blower and snow shovels are substitute to each other and as the price of blower increases it cause people to buy more of snow blower which results into rightward shift of demand curve to DD'. Now new equilibrium is at E** where new increased equilibrium quantity is Q** and increased equilibrium price is P**.

b. An unseasonably warm winter:

This means there will be less snow which means that demand for snow shovels decreases. It will cause demand curve to shift leftward from DD to DD'.

New equilibrium is at E**

New decreased quantity is Q**

New decreased price is P**

c. An increase in the average income level:

It will cause people to buy less of shovels because of inferior good and people wants to buy more of blower. This will cause

demand curve to shift leftward from DD to DD'.

New equilibrium is at E**

New decreased quantity is Q**

New decreased price is P**

Rahul Sunny answered 1 year ago

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