Question

Predict the direction of change for either supply or demand in the following situations:

               a. Several new companies enter the cell phone industry.

               b. Consumers suddenly decide SUVs are unfashionable.

               c. The U.S. Surgeon General issues a report stating that tomatoes prevent colds.

d. Frost threatens to damage the coffee crop, and consumers expect the price to rise sharply in the future.

e. The price of tea falls. What is the effect on the coffee market?

f. The price of sugar rises. What is the effect on the coffee market?

g. Tobacco lobbyist convince Congress to remove the tax paid by sellers on each carton of cigarettes sold.

h. A new type of robot is invented that will pick peaches.

i. Nintendo anticipates that the future price of its games will fall much lower than the current price.

Answer 1

Following are solutions.

a. Several new compaines enter the cell phone industry.

Ans. Supply of cell phones will increase . Supply curve shift to rigtward direction.

b. Consumers suddenly decide SUVs are unfashionable .

Ans. Demand will decrease due to unfavourable preference for SUVs. Demand curve will shift leftward in direction.

c. The U.S. sugeron general issues a report stating that tomatoes prevent colds.

Ans. With favourable report of surgeon for tomato. Demand for tomatoes increases . Demand curve will shift to right.

d. Frost threatens to damage the coffee crop, and consumers expect the price to rise sharply in the furture.

Ans. With increase in expectation for increase in price of coffee in future will increase demand today. This is because a rational consumer is always willing to pay less for commodity and if he feels that same commodity will be costly in future, he will create a stock of commodity.

Demand curve will shift to right.

e. the price of tea falls, what is the effect on the coffee market?

In economics, we consider tea and coffee are substitutes of each other. If price of tea falls and price of coffee remains same, consumer will find tea , a relatively cheaper commodity than coffee and will switch demand from coffee to tea. Therefore, demand for coffee decreases.

Demand curve will shift to left.

f. the price of sugar rises. what is the effect on the coffee market?

Ans. In economics, we consider sugar and coffee are compliments of each other and compliment goods are those which are demanded collectively. If price of sugar rises, consumer will decrease the demand of sugar and with decrease in demand of sugar consumer will also decrease the demand for coffee. Therefore, demand for coffee decreases.

Demand curve will shift to left.

g.Tobacco lobbyists convince Congress to remove the tax paid by sellers on each carton of cigarettes sold.

Ans. With removal of taxes paid which sellers used to pay, profit margin of sellers increases, which induces them to sell more. Therefore, supply increases.

Supply curve will shift to right.

h. A new type of robot is invented that will pick peaches.

Supply of peaches will increase because a new robot will take less time to pick peaches than a human labour. Supply curve will shift to right.

i. Nintendo anticipates that the furture price of it games will fall much lower than the current price.

With increase in expectation of supplier of commodity for decrease in price of game in future will Increase supply today. This is because a rational producer is always willing to sell commodity at higher price and if he feels that same commodity will be cheaper in future, he will try to sale its whole stock today to earn maximum share of profit.