Question

Construct an example and solve with Supply and Demand analysis one of each of the following. Name and graph the market of analysis and contingent markets, if any.

1. Consumers' expectations change.

2. The price of an input to production changes.

3. There is a change in production technology.

4. The number of sellers changes.

5. Sellers' expectations change.

Answer 1

1).

Consider the market for onion where “D” and “S” are the demand for and the supply of onion. Now, the equilibrium price is P1 the intersection of D1 and S1 respectively.

Now, let’s assume all the consumers expect that the price of onion may increase in future. So, they increase the demand for onion in order to buy less of it in future. So, the demand for onion will increase given the supply. So, the new equilibrium will be E2 the intersection of D2 and S1. So, the equilibrium price and the quantity demanded both increase to P2 and Q2 respectively.

2).

Consider the market for sugar where “D” and “S” are the demand for and the supply of sugar. Now, the equilibrium price is P1 the intersection of D1 and S1 respectively.

Now, let’s assume that the input price of sugar that the price of sugarcane increases. So, the production cost of making sugar increases, => supply of sugar decreases given the demand. So, the supply of sugar will decrease to S2 given the demand D1. So, the new equilibrium will be E2 the intersection of D1 and S2. So, the equilibrium price increases to P2 and the quantity demanded decrease to Q2.

3).

Consider the market for sugar where “D” and “S” are the demand for and the supply of sugar. Now, the equilibrium price is P1 the intersection of D1 and S1 respectively.

Now, let’s assume that the production technology of making sugar improves, => the production cost of making sugar decreases, => supply of sugar increases given the demand. So, the supply of sugar will increase to S2 given the demand D1. So, the new equilibrium will be E2 the intersection of D1 and S2. So, the equilibrium price decreases to P2 and the quantity demanded increase to Q2.

4).

Consider the market for egg where “D” and “S” are the demand for and the supply of egg, where each seller sale same amount of eggs at the market price. Now, the equilibrium price is P1 the intersection of D1 and S1 respectively.

Now, let’s assume that the numbers of seller increases, => the supply of egg in the market also increases given the demand. So, the supply of egg will increase to S2 given the demand D1. So, the new equilibrium will be E2 the intersection of D1 and S2. So, the equilibrium price of egg decreases to P2 and the quantity demanded increase to Q2.