Question

6. How will the following events affect equilibrium price and quantity for the product highlighted in italics? In each case, identify how the supply or demand curve shifts.

a. A drop in consumer incomes influences the demand for dry cleaning

b. Declining numbers of law school graduates affect the supply of legal services

c. Consumer expectations that the price of turkeys will soon rise affect the current demand for turkeys

d. A cost-saving technological innovation influences the supply of rice

Answer 1

Ans a) A drop in income leads to decrease in demand for dry cleaning which leads to excess supply of dry cleaning service causing a decrease in price for dry cleaning and decrease in equilibrium quantity of dry cleaning being done.
There would be a rightwards shift in the demand curve as a reault of this.

b) Lesser number of law graduated means lesser the supply of legal services i.e. supply for legal services decrease causing a situation of excess demand for legal services which causes an increase ik price for legal services but decrease in equilibrium quantity.

This causes supply curve to shift leftwards

c) The expectation of increase in price of turkey in future will increase the demand for turkey in present, this will cause an excess demand for turkeys in the market increasing the price of turkey and the equilibrium quantity of turkey sold.

This shifts the demand curve for turkey rightwards

d) The technological advancement in production of rice decreases the cost of production of rice increasing profits of the firms producing rice who then increases supply of rice which decreases the price of rice but increases the equilibrium quantity of rice sold in the market.

This causes a rightward shift of the supply curve of rice.

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