Question

Select a product or service and discuss how one or more macroeconomic variables, such as GDP or income, inflation, interest rates, or unemployment, might shift the demand or supply curve. Then explain how the shift influences market equilibrium.

Answer 1

Product selected for the demand and supply analysis, is a fast food product hotdogs and the macroeconomic variable considered is income. As per the above diagram, the demand and supply of hotdogs are at equilibrium E1 with price P1 and quantity Q1. Since income is an important determinant of the demand of the product, then it brings leftward or rightward shift in the demand. With the give scenario, income of the population increase with a good performance of GDP and higher employability conditions. The higher income brings a rightward shift in the demand and new equilibrium E2 is created. It increases the equilibrium quantity to the Q2 level. But, an increase in demand due to the increase in income, is catered at the higher price. So, equilibrium price also changes to the P2.
Here, demand increases with the rightward shift and supply increases along the supply curve to cater the increased demand.