Shifts in both Supply & Demand simultaneously. 1.Please draw three graphs to illustrate that a shift...

Shifts in both Supply & Demand simultaneously.

1.Please draw three graphs to illustrate that a shift in both S & D to the right can lead to an increase in demand; but, the impact on price is ambiguous. ( Hint: the answers depend on the magnitude of the shift of each curve. ) Please label your graph properly and use rulers while drawing the graphs.

a)Show that a shift of both S & D to the right can lead to higher P ( Graph one)

b)Show that a shift of both S & D to right can lead to a lower P ( Graph two)

c)Show that a shift of both S & D to the right can leave P the same ( Graph three)

2.Please draw three graphs to illustrate that a shift in both S & D to the left can lead to a decrease in demand; but, the impact on price is ambiguous ( Hint: the answers depend on the magnitude of the shift of each curve)

a)Show that a shift of both S & D to the left can lead to higher P ( Graph one)

b)Show that a shift of both S & D to left can lead to a lower P ( Graph two)

c)Show that a shift of both S & D to the left can leave P the same ( Graph three)

3.Please illustrate the impact of a shift in demand and supply in opposite directions on the equilibrium prices and quantities using three graphs.

Solutions

Expert Solution

1. (a) When demand curve shifts to the right by large amount compare to supply , then there is higher equilibrium price and higher quantity. It is shown in the graph below:

(b) When supply curve shifts to th right by large amount compare to demand , then there is lower equilibrium price and higher quantity. It is shown in the graph below:

(c) When demand and supply both shifts to the right by same amount , then price remains the same and there is higher equilibrium quantity. It is shown in the graph below:

2. (a) When Supply curve shifts to left by large amount compare to demand curve , then there is higher equilibrium price and lower quantity . It is shown in the figure below:

(b) When demand curve shifts to left by large amount compare to supply, then there is lower equilibrium price and lower quantity. It is shown in the figure below:

(c) When demand and supply curv both shifts to the left by the same amount , then equilibrium price remains the same and lower quantity. It is shown in the figure below:

3. Now,when supply and demand curve shifts in the opposite directions , Graphs are shown below:

Rahul Sunny answered 1 year ago

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