Question

Given the changes stated, predict new market equilibrium price and quantity demanded. For each question below, show your answer on a well-labeled supply-demand graph.

(a) Housing Market: Price of lumbers has decreased sharply and, at the same time, mortgage rate

has decreased to an all-time low.

(b) Electronics Market: Consumers expect a recession (e.g. a sluggish economy) and, at the same time,

      electronics product producers become less productive.

(c) Airline Tickets: A long-cold winter is finally over and hotels and resorts are offering big

discounts.

(d) Automobile: Trade restrictions limit auto companies’ ability to import auto parts.

Given the changes stated, predict new market equilibrium price and quantity demanded. For each question below, show your answer on a well-labeled supply-demand graph.

(a) Housing Market: Price of lumbers has decreased sharply and, at the same time, mortgage rate

has decreased to an all-time low.

(b) Electronics Market: Consumers expect a recession (e.g. a sluggish economy) and, at the same time,

      electronics product producers become less productive.

(c) Airline Tickets: A long-cold winter is finally over and hotels and resorts are offering big

discounts.

(d) Automobile: Trade restrictions limit auto companies’ ability to import auto parts.

Answer 1

a) Housing market

The decrease in the price of lumber will increase the quantity of houses, so the supply curve shifts to the right. As mortgage rates decline, then the demand for housing increases. The demand curve shifts to the right.

If both demand and supply increase, there will be an increase in the equilibrium output, but the effect on price cannot be determined.

b) Electronics market

As consumers expect a recession, demand for electronic goods will fall. When consumers expect the prices to fall in future, the demand for the product will fall. The demand curve shifts to the left.

As producers become less productive, the supply curve shifts to the left.

If both demand and supply decrease, there will be a decrease in the equilibrium output, but the effect on price cannot be determined.

c) Airline tickets

The demand for airline tickets will increases, causing the equilibrium price and quantity to increase.

d)

Automobile.

The supply of automobile will fall, the equilibrium price will increase and quantity will fall.