Question

1. Each of the events listed below has an impact on the market for bicycles. For each event, which curve is affected (supply or demand for bicycles), what direction is it shifted, and what is the resulting impact on the equilibrium price and quantity of bicycles?

   2.1. The price of automobiles increases.

   1. 2.2. Consumers' incomes decrease, and bicycles are a normal good.

   2. 2.3. The price of steel used to make bicycle frames increases.

   3. 2.4. An environmental movement shifts tastes toward bicycling.

2. 2.5. Consumers expect the price of bicycles to fall in the future.

3. 2.6. A technological advance in the manufacture of bicycles occurs.

4. 2.7. Thepricesofbicyclehelmetsandshoesarereduced.

5. 2.8. Consumers' incomes decrease, and bicycles are an inferior good.

Answer 1

2.1 Increase in price of automobiles decreases quantity demanded of bicycles which leads to movement of demand curve upwards. It causes decrease in equilibrium quantity and increase in price.

2.2 Normal goods are those goods whose demand decreases with decrease in income of consumer and vice-versa. Decrease in income of consumer shifts demand curve leftwards causing decrease in equilibrium price and quantity.

x- axis shows quantity of bicycles while y-axis shows price of bicycles.

2.3 Increase in the price of steel increases cost of production of bicycles which decreases supply of it. Decrease in supply shifts supply curve leftwards causing increase in equilibrium price and decrease in equilibrium quantity.

2.4 When taste of consumers shifts towards bicycling then demand of it increases which shifts demand curve rightwards causing increase in equilibrium price and quantity.

2.5 When consumers expect that price of bicycle will fall in near future then they decrease their current demand which shifts demand curve leftwards causing decrease in equilibrium price and quantity.

2.6 Technological advancement in the manufacturing of bicycle increases its production and thus increases its supply. Rightward shifts of supply curve causes increase in equilibrium price and quantity.

2.7 Helmets and shoes are complementary good of bicycle. Decrease in price of helmets and shoes increases demand of bicycles and thus shifts demand curve rightwards. It leads to increase in equilibrium price and quantity.

2.8 Inferior goods are those goods whose income effect is negative. Decrease in income increases demand of inferior good and vice-versa. So, demand curve of bicycles shifts rightwards causing increase in equilibrium price and quantity.