Question

For each of the following, explain the possible effects on demand and/or supply and equilibrium price and quantity of spiral bound notebooks using a correctly labeled supply and demand graph.

Assume the market for spiral bound notebooks is in equilibrium. All students in public schools need notebooks of some type when they attend classes. For each of the following, explain the possible effects on demand and/or supply and equilibrium price and quantity of spiral bound notebooks using a correctly labeled supply and demand graph with equilibrium price and quantity labeled. Under your hand-drawn graph, list the determinant of supply and/or demand that causes each shift as well as the change in price and quantity. You should have 8 graphs. The written answer should be set up under the graph as follows:

Price: Increase/Decrease (select one)
Quantity: Increase/Decrease (select one)
Determinant: One of the determinants for demand (TRIBE) or supply (ROTTEN) that causes the shift.

a) The price of natural gas, a resource used by manufacturers throughout the United States, doubles.
b) The government provides a subsidy for notebook manufacturers.
c) Your income increases and spiral bound notebooks are an inferior good.
d) The price of binders and paper, a substitute for spiral bound notebooks, decreases.
e) A new binding machine is invented that binds in half the time.
f) The price of all goods using paper is expected to double next month.
g) The government raises taxes on businesses at the same time that students receive their supply list for the new school year.
h) The price of pens and pencils falls dramatically.

Answer 1

a) We are given that natural gas is a resource used in making notebooks and its price is doubled. Hence thereis an increase in the price of raw materials (determinant) so supply curve would shift to the left and this reduces quantity and increases price

b) The government provides a subsidy for notebook manufacturers which reduces the cost of production (determinant), supply shifts to the right and this increases quantity and reduces the price.

c) Your income (determinant) increases and spiral bound notebooks are an inferior good so that you will demand fewer notebooks. This shifts the demand curve to the left and both price and quantity will fall

d) The price of binders and paper si decreased and these two are substitutes for spiral bound notebooks. A fall in price of substitute (determinant) will reduce the demand for notebooks. This shifts the demand curve to the left and both price and quantity will fall

e) A new binding machine is invented that binds in half the time. This is atechnological development (determinant) and so this increases production, supply shifts to the right and this increases quantity and reduces the price.

f) The price of all goods using paper is expected to double next month. This will increase the demand for paper and so its price. With higher price of raw material (determinant), supply curve would shift to the left and this reduces quantity and increases price

g) The government raises taxes on businesses at the same time that students receive their supply list for the new school year. On one side there will be an increased cost of production and on the other side there are new consumers. Demand shifts right and supply shifts left. Price rises but quantity will rise or fall or remain unchanged depending upon the size of shift of demand or supply

h) The price of pens and pencils falls dramatically which will increase their quantity demanded as they are complements (determinant) and so demand for notebooks will rise.