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.

Answer 1

A.

Supply curve. Right (increase). Decrease in government regulation will cause the supply curve to shift to the right. The equillibrium price will fall and quantity will increase.

B.

Demand curve. Right (increase). Increase in consumer income is a demand determinant which will cause demand curve to shift to the right. The equillibrium price and quantity will increase.

C.

Demand curve. Right (increase). Expectations of a price increase is a demand determinant which will cause demand curve to shift to the right. The equillibrium price and quantity will increase.