Microecon Ch:3 Sec: 3.3 61-67

The graph below represents the market for apartments, an inferior good. Graph the change in demand if wages increase.

As incomes rise, many people will be less likely to rent an apartment and more likely to own a home. A product whose demand falls when income rises, and vice versa, is called an inferior good. When income increases, the demand curve for apartments shifts to the left decreasing both equilibrium quantity and price for apartments.

A longer growing season caused by a warm spring and an ideal amount of water hits Georgia. It is also baseball season and peanut snacks are increasing in popularity. Demonstrate the effect on the two activities on the equilibrium price and quantity of peanuts.

First we'll analyze the shift in supply of peanuts. Step 1: Begin with the initial supply and demand curveswith the initial equilibrium price and quantity to illustrate what the market for peanuts looked like before this scenario starts. Step 2: Did the described change affect supply or demand? The extended growing season will increase supply. Step 3: Was the effect on supply positive or negative? The supply of peanuts will increase, shifting the supply curve to the right. Step 4: Compare the new equilibrium price and quantity to the original equilibrium price. A rightward shift in supply causes a movement down the demand curve, decreasing the equilibrium price and increasing the equilibrium quantity. Second, we'll analyze the shift in demand for peanuts. Step 1: Begin with the initial supply and demand curves with the initial equilibrium price and quantity to illustrate the the market for peanuts looked like before this scenario starts. Step 2: Did the described change affect supply or demand? The baseball season will cause a change in demand for peanuts. Step 3: Was the effect on demand positive or negative? Peanut snacks at baseball games causes higher quantity demanded at every given price, causing the demand curve for peanuts to shift to the right. Step 4: Compare the new equilibrium price and quantity to the original equilibrium price. The new equilibrium occurs at a higher quantity and a higher price than the original equilibrium.

The graph below represents the market for pineapples. Illustrate the change in the market for pineapples if the price of melons, a substitute, decreases.

If the price of melons decreases, people will buy more melons and fewer pineapples, as melons are a substitute for pineapples. As a result, the demand for pineapples will decrease. The demand curve for pineapples shifts to the left, leading to lower equilibrium quantity and price levels

If the price of a good were to change will it shift demand or change quantity demanded?

It will change quantity demanded.

The graph below depicts the market for shoes in Portugal. Suppose the price of rubber, a key input in the production of shoes, decreases. Illustrate the effect of the change in the price of rubber on the market for shoes in Portugal by adjusting the graph accordingly.

One of the factors affecting supply is the cost of inputs. A fall in the cost of an input is a change that increases the quantity supplied at any given price. In this question, the price of rubber, a key input in the production of shoes, has fallen. Therefore, the quantity supplied of shoes at any given price would increase, shifting the supply curve of shoes to the right. The demand curve does not shift because none of the factors affecting demand have changed. The result of demand remaining unchanged and supply increasing is a higher equilibrium quantity and a lower equilibrium price of shoes.

Farmers are given a subsidy to encourage the production of more corn. Demonstrate the effect this has on the equilibrium price and quantity of corn.

Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? A subsidy decreases the production cost of corn, impacting supply. Step 3: The supply of corn will increase, shifting the supply curve to the right. Step 4: A rightward shift in supply causes a movement down the demand curve, decreasing the equilibrium price and increasing the equilibrium quantity.

Which of the following is not a factor that could cause a shift in supply for a certain good?

a change in income: A change in income is the only choice that affects demand, which will change quantity supplied due to a shift in the demand curve but not a shift of the supply curve.

All of the following cause the supply curve to shift except _________.

a change in product price Ex: A change in the supply curve can set a new equilibrium quantity and price, but a price change cannot shift the supply curve. The reason price has changed is most likely because of a shift in the demand curve. When the demand curve shifts a new equilibrium price and quantity supplied is set along the supply curve.

Suppose that the magnitudes of price elasticity of demand and price elasticity of supply for a good are roughly equal. If demand for the good increases slightly and at the same time supply of that good significantly decreases, the equilibrium price of the good will ________ and the equilibrium quantity of the good will ________.

increase; decrease : An increase in demand will cause the equilibrium price to rise and the equilibrium quantity to rise. A decrease in supply will cause the equilibrium price to rise and the equilibrium quantity to fall. In this situation, both shifts have the same effect on price, so overall the equilibrium price will rise. However, the changes in supply and demand have opposite impacts on the equilibrium quantity. The only way to know the overall effect on the equilibrium quantity is to know the magnitudes of the shifts in supply and demand. In this case, since the magnitude of the shift in supply was greater than the magnitude of the shift in demand, the supply shift will have a greater effect on the equilibrium quantity than the demand shift, and therefore overall the equilibrium price will fall.

Which of the following would not cause the demand curve for a good to shift?

price of the good changes: When the price of a good changes, it is a movement along the demand curve. The new equilibrium point along the demand curve will indicate both the new quantity demanded and the new price.

A breakthrough in oil mining technology allows oil workers to produce gasoline significantly faster and cheaper. At the same time, Honda releases an affordable electric car. Everything else held constant, how does this impact the equilibrium price and quantity of gasoline?

Equilibrium price will decrease, while the effects on equilibrium quantity are unknown. : Note that both the demand and the supply of gasoline will be affected. The improvements in technology of gasoline production will increase the supply of gasoline, shifting it to the right, lowering the equilibrium price and increasing the equilibrium quantity. At the same time, the introduction of the electric car will decrease the demand for gasoline, shifting the demand curve to the left, lowering the equilibrium price and the equilibrium quantity. Equilibrium price falls due to the two events, but the impact on quantity depends on the magnitude of the changes in supply and demand. Therefore, the net change in quantity is unknown.

Technological advances in producing plastic decrease the cost by 10%. The Christmas season drives up the demand for children's plastic toys. Demonstrate the impact on the equilibrium price and quantity of children's toys.

Step 1: Begin with the initial supply and demand curves with the initial equilibrium price and quantity to illustrate the the market for plastic toys looked like before this scenario starts. Step 2: Did the described change affect supply or demand? A decrease in the price of plastic will reduce the cost of producing toys, thus impact toy supply. Step 3: Was the effect on supply positive or negative? The supply of toys will increase, shifting the supply curve to the right. Step 4: Compare the new equilibrium price and quantity to the original equilibrium price. A rightward shift in supply causes a movement down the demand curve, decreasing the equilibrium price and increasing the equilibrium quantity. Second, we'll analyze the shift in demand for plastic toys. Step 1: Begin with the initial supply and demand curves with the initial equilibrium price and quantity to illustrate the the market for plastic toys looked like before this scenario starts. Step 2: Did the described change affect supply or demand? A need to buy presents will cause a change in demand for plastic toys. Step 3: Was the effect on demand positive or negative? The Christmas season causes higher quantity demanded for plastic toys at every given price, causing the demand curve for plastic toys to shift to the right. Step 4: Compare the new equilibrium price and quantity to the original equilibrium price. The new equilibrium occurs at a higher quantity and a higher price than the original equilibrium.

A main component used in the production of bowling balls has risen in price by 15%. Demonstrate the effect this has on the equilibrium price and quantity of bowling balls.

Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? The increase in price will decrease supply because of increased production costs. Step 3: The supply of bowling balls will decrease, shifting the supply curve to the left. Step 4: A leftward shift in supply causes a movement up the demand curve, increasing the equilibrium price and decreasing the equilibrium quantity.

Tax rates on the sales of cigarettes have been reduced. Demonstrate the effect of the tax on the equilibrium price and quantity of cigarettes.

Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? The reduction in taxes will increase the supply of cigarettes because profits will be increased. Step 3: The supply of cigarettes will increase, shifting the supply curve to the right. Step 4: A rightward shift in supply causes a movement down the demand curve, decreasing the equilibrium price and increasing the equilibrium quantity.

Suppose that a soda tax, intended to curb obesity, is already in place. Demonstrate the effect of a reduction in the soda tax on the equilibrium price and quantity of soda. Recall that taxes are considered as costs to the producers.

Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? The tax decrease will cause the costs to decrease for the producers of soda. Step 3: The supply of soda will increase, shifting the supply curve to the right. Step 4: A rightward shift in supply causes a movement down the demand curve, decreasing the equilibrium price and increasing the equilibrium quantity.

Corn syrup and maple syrup are substitutes. News of increased weight loss and strength while following the Paleo diet has increased the demand for maple syrup. Meanwhile, the government has subsidized corn crops, a key ingredient of corn syrup. As a result, the equilibrium price of corn syrup _______ and the equilibrium quantity ________.

decreases; is unknown Ex: The supply for corn syrup increases (shifts right) due to the subsidy, and the demand decreases (shifts left) as people substitute maple syrup for corn syrup. Equilibrium price of corn syrup falls due to the two events, but the impact on quantity depends on the magnitude of the changes in supply and demand, so its effects are unknown.