Question

1. In the following three situations, the market is initially in equilibrium. Explain the changes in either supply or demand that result from each event. After each event described below, does a surplus or shortage exist at the original equilibrium price? What will happen to the equilibrium price as a result? Demonstrate your answer graphically.
A. 2015 was a very good year for California wine-grape growers, who produced a lot of grapes.
B. After a hurricane, Florida hoteliers often find that many people cancel their upcoming vacations, leaving them with empty hotel rooms.
C. Consider the market for new snowblowers. After a heavy snowfall, many people want to buy second-hand snowblowers at the local tool shop.
2. Use a supply and demand model to explain how the following occurrence is possible.
Lobster prices usually fall during the summer peak lobster harvest season, despite the fact that people like to eat lobster during the summer more than at any other time of year.

Answer 1

A. 2015 was a very good year for California wine-grape growers, who produced a lot of grapes. Supply of grapes in California increases. As a result supply curve will shift rightward from S to S1. Equilibrium price will fall from P to P1 and equlibrium Quantity will rise from Q to Q1. Assuming there is no change in demand curve.

B.After a hurricane, Florida hoteliers often find that many people cancel their upcoming vacations, leaving them with empty hotel rooms. the demand for hotel rooms decreases. The demand curve will shift leftward from D to D1. Equilibrium price will fall from P to P1 and equlibrium Quantity will fall from Q to Q1. Assuming there is no change in supply curve.

C. Consider the market for new snowblowers. After a heavy snowfall, many people want to buy second-hand snowblowers at the local tool shop. the demand for new snow blowers will decrease due to this. The demand curve will shift leftward from D to D1 and equlibrium price will fall from P to P1 and equlibrium Quantity will fall from Q to Q1. Assuming there is no change in supply curve.

2. Lobster prices usually fall during the summer peak lobster harvest season, despite the fact that people like to eat lobster during the summer more than at any other time of year.

When price falls from P to P1 which is below the equilibrium price, quantity demanded rises from Q to Q1 and quality supply falls from Q to Qo.

I.e., Quantity Demanded is more than Quantity supplied.

This results in excess demand for lobster.

In order to correct the situation, the price of lobster must rise so that quantity demanded and quantity supplied are equal.