Question

In: Economics

For each of the following market situations, explain whether the supply curve or the demand curve...

For each of the following market situations, explain whether the supply curve or the demand curve shifts, in which direction does it shift, and the equilibrium price and quantity as a result of the change. Please draw diagram for each and also explain the reasoning

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.

Solutions

Expert Solution

In each case, D0 and S0 are initial demand and supply curves intersecting at point A with equilibrium price P0 and quantity Q0.

(a)

Favorable health report will shift consumer preference toward the good, which will increase its demand, shifting demand curve rightward, increasing both price and quantity.

In following graph, D0 shifts right to D1, intersecting S0 at point B with higher price P1 and higher quantity Q1.

(b)

Higher price of steel, an input to production, will increase production cost, which will decrease supply of automobile, shifting supply curve leftward, increasing price and decreasing quantity.

In following graph, S0 shifts left to S1, intersecting S0 at point B with higher price P1 and lower quantity Q1.

(c)

Availability of online substitute will decrease demand for newspaper, shifting demand curve leftward, decreasing both price and quantity.

In following graph, D0 shifts left to D1, intersecting S0 at point B with lower price P1 and lower quantity Q1.

(d)

Accounting software being used with computers (a substitute to manual accounting services) will decrease the demand for accounting services, shifting demand curve leftward, decreasing both price and quantity.

In following graph, D0 shifts left to D1, intersecting S0 at point B with lower price P1 and lower quantity Q1.

Rahul Sunny answered 2 years ago
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