Question

Armed with the knowledge you are gaining from this module week's summit session, it's now time for us to apply what we are learning! For this activity, complete four of the five scenario-based problems. Prepare a document to explain your answers and graph your solutions. Make sure to use references in APA format to support your positions.

1. Joshua’s income increases, while federal taxes increase; therefore, please illustrate by constructing a supply and demand graph, the direction in which the curves will shift and state the new equilibrium price and quantity; for example, state whether price and quantity increased, decreased, or are indeterminate. Please explain your rationale based on the determinants of demand and supply.

2. Winston is disappointed in the new SUV he recently purchased. He was excited about the new technology incorporated in his SUV but they did not live up to his expectations; therefore, please illustrate by constructing a supply and demand graph, the direction in which the curves will shift and state the new equilibrium price and quantity; for example, state whether price and quantity increased, decreased, or are indeterminate. Please explain your rationale based on the determinants of demand and supply.

3. Kim is in the market for a new automobile, and since she was just promoted at work, her tastes in higher-end automobiles has increased, but to her surprise taxes have decreased, which make a new automobile more attractive; therefore, please illustrate by constructing a supply and demand graph, the direction in which the curves will shift and state the new equilibrium price and quantity; for example, state whether price and quantity increased, decreased, or are indeterminate. Please explain your rationale based on the determinants of demand and supply.

4. U.S. agricultural farmers are excited since the government announced an increase in subsidies even though the substitutes for agricultural goods that are imported have increased in demand; therefore, please illustrate by constructing a supply and demand graph, the direction in which the curves will shift and state the new equilibrium price and quantity; for example, state whether price and quantity increased, decreased, or are indeterminate. Please explain your rationale based on the determinants of demand and supply.

5. Due to advanced technology, the price of substitute goods for higher education has increased in demand; therefore, please illustrate by constructing a supply and demand graph, the direction in which the curves will shift and state the new equilibrium price and quantity; for example, state whether price and quantity increased, decreased, or are indeterminate. Please explain your rationale based on the determinants of demand and supply.

Answer 1

1. Income is factor that determines demand. For normal good when income increases demand shifts to right(increases). Eg. Brand new car. For inferior good when income increases demand shifts to left(decreases). Eg. second hand car. As demand goes up prices also increase.

Tax increase shifts supply curve to left (supply decreases) as products are taxed and profits are reduced. Many a times companies are mot able to shift this burden to consumers and as profits go down but costs remain same, they may prefer to decrease supply.As supply goes down, prices go up.

Now, if we have to decide impact of income and tax increase at the same time, then due to high income demand goes up and prices go up and also due to taxes supply shifts left and prices go up.

Refer fig. below:

Price moves to P2 from P1 due to demand shiftS from D1 to D2, equilibrium goes from a to b again price goes up to P3 when supply goes up to S2.

Quantity change is indeterminate as effect will decide it. First quantity goes up to Q2 from Q1 but then reduction is indeterminate.