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: There is a shortage of construction workers and, at the same time, mortgage rate

has increased substantially.

(b) Electronics Market: Government increased tariffs on foreign imports (i.e. foreign electronics products).

(c) Manufacturing labor market: Manufacturing companies rely more on robots and AIs in their production.

(d) Ice cream Market: Summer temperature reaches all-time high, and at the same time, price of dairy products (such

      as milk) goes down substantially.

Answer 1

(a) Housing Market: There is a shortage of construction workers. This causes the supply to decrease and so the supply curve shifts left. At the same time, mortgage rate has increased substantially. This causes the demand to decrease and so the demand curve shifts left. New equilibrium price can rise, fall or remain unchanged but new equilibrium quantity falls. Here we assume the size of shifts to be same so price remains unchanged

(b) Electronics Market: Government increased tariffs on foreign imports. This raises domestic production but reduces foreign imports so overall the supply should decrease. Hence, this causes the supply to decrease and so the supply curve shifts left. New equilibrium price rises and new equilibrium quantity falls

(c) Manufacturing labor market: Manufacturing companies rely more on robots and AIs in their production. This is likely to displace labor so the demand for labor decreases. Demand curve for labor shifts left. New equilibrium wage rate as well as new equilibrium quantity of labor hired both fall

(d) Ice cream Market: Summer temperature reaches all-time high. People demand more ice cream in summers so the demand is increased. Demand curve for ice cream shifts right. At the same time, price of dairy products (such as milk) goes down substantially which raises production. Hence supply curve shifts right. New equilibrium price can rise, fall or remain unchanged but new equilibrium quantity rises. Here we assume the size of shifts to be same so price remains unchanged