Question

Information on a certain market is presented below. You are to identify which curve or curves will move in the demand-supply model, which way they will move, and make predictions about the equilibrium price and quantity to the extent possible.

1. For each of the following observations, identify which curve will move and which way it will move. Be brief in your description using two words such as "supply left" or "demand right." Describe the curve movement as left or right.

A. There is a decrease in government regulation
B. There is an increase in consumer income.
C. There is an expectation among consumers of a higher price.

2. Draw a graph of the initial equilibrium. Then show the change(s) you predict based on your answers in the previous part. Do all of your work in ONE graph and combine curve movements into a single movement of each curve if possible. For example, if two influences indicate the supply curve will move in the same direction, move the supply curve only one time in that direction. Be sure to label all axes and curves clearly. Indicate the first equilibrium and label it as Point 1 and the new equilibrium and label it as Point2. Next to your graph, summarize the changes you can predict with certainty and indicate if there is anything uncertain.

Answer 1

Sol 1 :

A. Decrease in government regulation :

• It will decrease the restriction imposed by the government.
• Producers will tends to produce more supply.
• Increase in supply due to factor other than price will shift the supply curve to the right.

B. Increase in consumer income :

• this will make the consumers to demand more. As , they've more disposable income than before.
• Increase in demand due to factors other than price will shift the demand curve to the right.

C . Expectation among consumer of higher prices.

• this will tends the consumer to increase in demand as of higher price in future.
• Increase in demand means demand curve will shift to the right .