Question

1. Supply & Demand graphs

a) A couple weeks ago, it was Easter. Now Easter is over. What has happened to the price and quantity sold of Easter eggs? Show this on a carefully drawn and labeled graph.

b) Oil producers started pumping out a lot more gasoline and COVID-19 has a lot of people staying home more than they used to. What do we *know* will happen to market price and quantity sold? Demonstrate this on a carefully drawn and labeled graph.

Answer 1

(a) D0 and S0 are demand and supply curves that show market for easter eggs in equilibrium during Easter. Since Easter is over, the demand for easter eggs will decline. The demand curve will shift leftward to D1. The supply remains unchanged.

The price of easter eggs has decreased to P1 and the quantity sold has also decreased to q1.

(b)D0 and S0 show demand and supply curves for gasoline before COVID-19 impacted the economy. After COVID 19, there are restrictions on movements and as a result many people are staying at home. This reduces the vehicular demand for oil. The demand curve shifts leftward to D1. Meanwhile oil producers started pumping out a lot more gasoline and supply increased. The supply curve shifts rightward to S1.

At the new intersection of demand and supply curves, the market price of gasoline decreases and the quantity sold may remain unchanged, increase or decrease. If the increase in supply > decrease in demand, quantity sold will increase. If the increase in supply < decrease in demand, quantity sold will decrease. If the increase in supply = decrease in demand, quantity sold will remain unchanged.