Question

Suppose that the market for nurse practitioners in California is competitive, with regularly shaped demand and supply curves.

a. Draw a supply and demand graph that shows equilibrium market price and aggregate quantity of services provided. On all graphs, label the two axes. Now imagine that California changes its laws to allow nurse practitioner to practice independently - that is, without needing to be directly supervised by a physician, and further suppose that the publicity surrounding this change results in an increase in people’s taste for (that is, demand) for nurse practitioner visits.

b. Re-do the graph from Question 1.a, showing how the market will change in the short-run, and indicate clearly if and how equilibrium price and quantity have changed. In the long run, the supply of nurse practitioners can adjust to the increase/decrease in prices (and therefore, wages) that you found in Question 1.b.

c. Re-do the graph one more time, showing how the market has changed from both the initial equilibrium in Question 1.a and the short-term alteration in Question 1.b. Make it clear how equilibrium price and quantity will have changed, as well.

Answer 1

a). The intial position of the equilibrium is shown by the above diagram. The price is measured on the vertical axis and quantity demanded is shown in the horizontal axis. The equilibrium is at the position where the supply and demand are equal and the point is 'E'. The equilibrium price is Ep and the equilibrium quantity is Eq.

b). The above diagram shows the second situation in the question, when the law allowes nurses to practices independently, this would create a rightward shift in the demand curve of the firm from D1 to D2. This would create a upward pressure in the demand for nurses and this results in the rising of prices from Ep to Ep1, and also the quantity supplied will also increase from EQ to EQ1.

c). when in the long run, due to the high prices more suppliers are attracted in to the market this is the right ward shift of the supply curve. So the right ward shift in the supply curve puts a down ward pressure in the price so the prices will fall and there will be an increase in the quantity demanded.