Question

For each of the following market situations, explain whether the supply curve or the demand curve shits, in which direction does it shift, and the equilibrium price and quantity as a result of the change.

a) The market for Ginkgo Biloba after studies shows its efficacy at memory retention with no adverse side effects.

b) The market is for automobiles after the price of steel, which is used to produce automobiles, increases by 50%.

c) The market is for daily newspapers as more news becomes available for free on the Internet.

d) The market is for accounting services after spreadsheet and accounting software is introduced for use with personal computers.

Answer 1

A) The demand curve shifts up and to the right , resulting in higher price and quantity sold in the market. (because there are no adverse effects and therefore quantity demanded will be more.)

B) The supply shifts back to the left , resulting in a higher price and reduced quantity sold in the market. (after the increase in price the price of automobiles will increase automatically and therefore quantity demanded will be less and supply curve will shift backwards towards the left.)

C) The demand curve shifts down and to the left, resulting in a lower price and reduced quantity sold in the market. (as with information available on your mobile via internet, people will not purchase newspapers compared to before , therefore demand and price will decrease.)

D) The supply shifts out and to the right , resulting in a lower price and increased quantity sold in the market. (as with accounting software availability accounting services will be more which means more people will be available and therefore price will come down.)