Question

Using shifts in supply and demand curves, describe two changes in the industry in which your firm operates. The changes may arise from a change in costs, entry/exit of firms, a change in consumer tastes, a change in the macroeconomy, a change in interest rates, or a change in exchange rates. Label the axes and state the geographic, product, and time dimensions of the demand and supply curves you are drawing. Explain what happened to industry price and quantity by making specific references to the demand and supply curves. One change should affect demand and the other, supply.

I WANT TO USE A SPORT VENUE AS MY FIRM

Answer 1

Consider the given problem here an industry consist of many firms. So, here “D1” be the industry demand curve and “S1” be the industry supply curve. So, the initial equilibrium is “E1” the intersection of “D1” and “S1”.

So, here we have measured “q” on the horizontal axis and “P” on the vertical axis. Now, the equilibrium “P” and “q” are given by “P1” and “q1” respectively. Now, let’s assume that the price of input increases, => the production cost increases, => producer reduce the production of the good, => the supply curve will shift to the left to “S2” given the price. So, the new equilibrium is “E2” the intersection of “D1” and “S2”. So, here we can see that the price of the good increases and the equilibrium quantity demanded decreases.

Now, consider the case of change in test and preference of consumer. So, the initial equilibrium is “E1”, => the equilibrium “P” and “q” are given by “P1” and “q1” respectively. Now, let’s assume that the test and preference of the consumer changes, => consumer starts demanding more of the goods at the given price, => the demand for the good increases, => the demand curve will shift to the right to “D2” given the price. So, the new equilibrium is “E2” the intersection of “D2” and “S1”. So, here we can see that the equilibrium price as well as the quantity of the good increases to “P2” and “q2” respectively. So, here all the firms into the industry increase their production.