a) Using diagrams and supply and demand concept, carefully explain the impact of each of the...

a) Using diagrams and supply and demand concept, carefully explain the impact of each of the following on equilibrium price and quantity of certain products. i) Simultaneous decrease in price of raw material and decrease in income for a normal good (other things being equal). ii) Simultaneous increase in business taxes and an increase in consumer income for a normal good (other things being equal).

Solutions

Expert Solution

As the price of raw material decreases, the supply of the good will increase and the supply curve will shift rightward from S1 to S2. Now as there is a decline in income for a normal good, the demand curve shifts leftward from D1 to D2.

Now when the rightward shift of the supply curve is higher than the leftward shift of the demand curve, then as the economy moves from point A to point B, then the equilibrium price falls from P1 to P2 and the equilibrium quantity increases from Q1 to Q2 (panel A).

When the leftward shift of the demand curve is higher than the rightward shift of the supply curve, then as the economy moves from point A to point B, then the equilibrium price falls from P1 to P2 and the equilibrium quantity decreases from Q1 to Q2 (panel B).

When the leftward shift of the demand curve is equal to the rightward shift of the supply curve, then as the economy moves from point A to point B, then the equilibrium price falls from P1 to P2 and the equilibrium quantity remains unchanged at Q1 (panel C).

ii. As there is an increase in business taxes, the supply of the good will fall and the supply curve will shift leftward from S1 to S2. Also as there is an increase in consumer income for a normal good, the demand curve shifts rightward from D1 to D2.

Now, When the rightward shift of the demand curve is lower than the leftward shift of the supply curve, then as the economy moves from point A to point B, the equilibrium price increases from P1 to P2 and the equilibrium quantity decreases from Q1 to Q2(Panel A)

When the rightward shift of the demand curve is higher than the leftward shift of the supply curve, then as the economy moves from point A to point B, the equilibrium price increases from P1 to P2 and the equilibrium quantity increases from Q1 to Q2(Panel B)

When the rightward shift of the demand curve is equal to the leftward shift of the supply curve, then as the economy moves from point A to point B, the equilibrium price increases from P1 to P2 and the equilibrium quantity remains unchanged at Q1 (Panel C).

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

a. Using appropriate demand and supply diagrams in each of the following cases explain the impact...

a. Using appropriate demand and supply diagrams in each of the following cases explain the impact on the market price and quantity traded. i. Market for second-hand clothing following a high increase on import duties on second- hand clothes ii. The market for tomatoes following a bumper harvest iii. The market for Sanwatt battery following a fall in price of Tiger head battery b. Define market as applied in economics and explain briefly any four types of markets.

use the demand and supply model, including diagrams to explain the impact on the prices and...

use the demand and supply model, including diagrams to explain the impact on the prices and quantities in the market of roses in Muang district of: Valentine's Day, the weather,and young people 'going digital'

Explain the effects of each situation below on the market demand and supply using suitable diagrams....

Explain the effects of each situation below on the market demand and supply using suitable diagrams. A new skirt design which increases the preferences for the Asshanas clothing brand among teenagers. A government ban on the supply of meat from New Zealand. The increased price of chicken feed and hos this affects the chicken market. The effects of the Goods and Services Tax (GST) on smartphone purchases.

Explain the effects of each situation below on the market demand and supply using suitable diagrams....

Explain the effects of each situation below on the market demand and supply using suitable diagrams. a. A new skirt design which increases the preferences for the Asshanas clothing brand among teenagers. b. A government reduce the import rate on the supply of meat from New Zealand. c. The decrease in price of chicken feed and hos this affects the chicken market. d. The effects of the Goods and Services Tax (GST) on smartphone purchases.

Carefully explain what is happening in the market. Indicate the impact if any on demand, supply,...

Carefully explain what is happening in the market. Indicate the impact if any on demand, supply, price and quantity: a) Fears of mercury poisoning lead locals to shun fish caught in nearby rivers Impact on demand Impact on supply Impact on price Impact on quantity b) In the market for milk, increases in the price of Christmas trees cause trees to be planted on land previously used by dairy farmers. Impact on demand Impact on supply Impact on price Impact...

Using demand and supply analysis, supported by diagrams, explain why there may be a misallocation of...

Using demand and supply analysis, supported by diagrams, explain why there may be a misallocation of resources in the pricing that occurs in the primary market for ticket sales for events where demand outstrips the available supply. Word limit - 160 words

using carefully labeled diagrams, indicate the expected impact on the labour force participation of married women...

using carefully labeled diagrams, indicate the expected impact on the labour force participation of married women by changes in each of the following factors, other things held constant: a. An increase in the education of women b. A more equal sharing of hoursehold responsibilities between husband and wife. c. A reduction in the average number of children. d. An increased tendency to have children spaced more closely together e. An increase in the earnings of husbands. f. Daycare paid out...

Problems 1 – Explain each of the following statementsusing supply-and-demand diagrams.“When a cold snap...

Problems 1 – Explain each of the following statements using supply-and-demand diagrams.“When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country.”“When the weather turns warm in New England every summer, the price of hotel rooms in Caribbean resorts plummets.”“When a war breaks out in the Middle East, the price of gasoline rises and the new price of a used Cadillac falls.”

Explain the concepts below with the diagrams. • Law of demand • Law of supply

Explain the concepts below with the diagrams.• Law of demand• Law of supply • Show the equilibrium price and quantity

Using the demand and supply diagrams (one for each market), show what short-run changes in price...

Using the demand and supply diagrams (one for each market), show what short-run changes in price and quantity would be expected in the following markets if terrorism-related worries about air safety cause travelers to shy away from air travel. Each graph should contain the original and new demand and supply curves, and the original and new equilibrium prices and quantities. For each market, write one sentence explaining why each curve shifts or does not shift. The market for air travel....

Subjects