1. Indicate what happens to Supply, Demand and the Equilibrium when each of the items change....

1. Indicate what happens to Supply, Demand and the Equilibrium when each of the items change. You can draw an arrow or write Increase or Decrease. (Demand and Supply will not both be affected by each change.) Change Demand Supply Eq. Price Eq. Quantity Price of a complement falls Income falls (inferior good) Price of relevant resource rises Technology Advances Number of Sellers Rises Tax on Production increases

Expert Solution

1) when Price of a complement falls demand for the good increases. Demand curve shifts right and the new equilibrium is at E'. The equilibrium price increases to P' and equilibrium quantity increases to Q'.

2) When Income falls (inferior good) the demand for the inferior good increases. Inferior good have negative income relation. Demand curve shifts right and the new equilibrium is at E'. The equilibrium price increases to P' and equilibrium quantity increases to Q'.

3) When Price of relevant resource rises cost of production increases which decreases profitability and supply decreases. The supply curve shifts left. new ewqilibrium is at E'. The equilibrium price increases to P' and equilibrium quantity decreases.

4) Technology Advances decreases cost of production which increases profitability and supply increases. The supply curve shifts right. new ewqilibrium is at E'. The equilibrium price decreases to P' and equilibrium quantity increases.

5) Number of Sellers Rise increases supply. The supply curve shifts right. new ewqilibrium is at E'. The equilibrium price decreases to P' and equilibrium quantity increases.

6) Tax on Production increases cost of production which decreases profitability and supply decreases. The supply curve shifts left. new ewqilibrium is at E'. The equilibrium price increases to P' and equilibrium quantity decreases.

Rahul Sunny answered 2 years ago

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