Question

For each of the following items, identify the direction of the change in demand and/or supply for the good in question (indicated in italics), and determine the direction of the change in equilibrium price and quantity—using fully-labelled diagrams throughout. If a price or quantity outcome is uncertain, make the reason for the uncertainty clear.  

5.    Tickets to stage plays increase in price, leading to a change in the demand for a substitute, tickets to operas.

6.    Tickets to pro football games increase in price, altering the demand for a complement, NFL souvenirs.

7.    Consumers experience a decline in their incomes, while the producers of Audi automobiles (a normal good) experience an increase in their operating costs.

8.    Bus rides are an inferior good, and consumer incomes increase.  

Answer 1

In each graph, price and quantity are measured vertically & horizontally respectively. D0 & S0 are initial demand & supply curve intersecting at point a with initial equilibrium price P0 & quantity Q0.

(5) Higher price of Stage shows, a substitute for operas, will increase the demand for operas, shifting its demnd curve right, increasing both price and quantity. In following graph, D0 shifts right to D1, intersecting S0 at point B with higher price P1 & higher quantity Q1.

(6) Higher price of Pro Football, a complement for NFL, will decrease the demand for NFL, shifting its demand curve left, decreasing both price and quantity. In following graph, D0 shifts left to D1, intersecting S0 at point B with lower price P1 & lower quantity Q1.

(7) Lower expected income will decrease the demand for Audi, shifting demand curve leftward, decreasing both price and quantity. Higher cost of operations will decrease supply, shifting supply curve leftward, increasing price and decreasing quantity. Net effect is a definite decrease in quantity, but effect on price is uncertain. In following graph, as D0 shifts left to D1 & S0 shifts left to S1, they intersect each other at point B with lower quantity Q1, with price being P1 (lower by drawing only).

(8) Higher consumer income will decrease the demand for bus rides, shifting demand curve leftward, decreasing both price and quantity. In following graph, as demand shifts left to D1, it intersects S0 at point B with lower price P1 and lower quantity Q1.