Question

For

Supply and Demand Analysis Due Week 2 Complete the following questions from your Textbook (page 75). For EACH question, please graph AND explain your graph in detail below. I encourage students to review the PPTX and review Chapter 3 in the text as well. Note: Students can use excel OR write on this page and either scan the document or take a picture and upload to the gradebook. Keep it simple!

Section 1: Demand. Consider the market for cars. Which determinant of demand does each of the following events affect? Choose from consumer preferences, prices of related goods, incomes, expectations, and the number of buyers.

1. Environmentalists launch a successful One Family, One Car campaign.

2. A baby boom occurred 16 years ago.

3. Layoffs increase increase as the economy sheds millions of jobs.

Section 2: Supply. Consider the market for corn. Say whether each of the following events will cause a shift in the demand curve or a movement along the curve. If it will cause a shift, specify the direction.

4. A drought hits corn-growing regions, cutting the supply of corn.

5. The government announces a new subsidy for biofuels made from corn.

6. A global recession reduces the incomes of consumers in poor countries, who rely on corn as a staple food.

Answer 1

Section 1.

All the factors other than price of the good cause demand curve to shift left or right. If demand for a good increases it cause rightward shift of demand curve and if demand decreases it cause leftward shift of supply curve.

In the graph below, Price is on Y axis and Quantity is on X axis. DD is the demand curve where A is the point on DD at which Price is P* and quantity is Q*.

1. Environmentalists launch a successful One Family, One Car campaign: This will cause change in consumer preference as now people will prefer only one car for the whole family. This will cause decrease in demand of car as compare to earlier situation when people were preferring more than one car for their family. Now in graph, at the same price demand decreases which cause leftward shift of demand curve as DD' where at point B price is same as earlier but quantity decreases to Q**.

2. A baby boom occurred 16 years ago: This means that those childs are noe become adult so there is a rise in number of buyers of cars which cause demand to increase. Now in graph, at the same price demand increases which cause rightward shift of demand curve as DD' where at point B price is same as earlier but quantity increases to Q**.

3. Layoffs increase increase as the economy sheds millions of jobs: Car is a type of luxury good and demand for luxury good decreases as the income of the consumer decreases. So here due to layoffs the income of the consumer decreases which cause decrease in demand for cars. Now in graph, at the same price demand decreases which cause leftward shift of demand curve as DD' where at point B price is same as earlier but quantity decreases to Q**.

Section 2:

All the factors other than price of the good cause supply curve to shift left or right. If supply for a good increases it cause rightward shift of supply curve and if supply decreases it cause leftward shift of supply curve.

In the graph below, Price is on Y axis and Quantity is on X axis. SS is the Supply curve where A is the point on SS at which Price is P* and quantity is Q*.

4. A drought hits corn-growing regions, cutting the supply of corn: This will cause supply of the corn to decrease which cause leftward shift of supply curve from SS to SS'. Now at the same price P* the quantity of corn decreases from Q* to Q**.

5. The government announces a new subsidy for biofuels made from corn: This means that to produce more biofuels on which government provide subsidy the demand for corn increases. Now in graph, at the same price demand increases which cause rightward shift of demand curve as DD' where at point B price is same as earlier but quantity increases to Q**.

6.A global recession reduces the incomes of consumers in poor countries, who rely on corn as a staple food: Here staple food is a type of inferior good because poor people consume more quantity of it because of their low income. Here due to global recession the income of the people in poor country decreases which cause demand for staple good (corn) to rise.

Now in graph, at the same price demand increases which cause rightward shift of demand curve as DD' where at point B price is same as earlier but quantity increases to Q**.