Question

Consider the following scenario:

The demand for Office Moving Services falls while the demand for Medical Supply Services increases. Some Office Moving suppliers leave that market and enter the market for Medical Supply Services. The end result is that prices in both markets return to their original amount.

Graph the following based on the above scenario:

1a. The market for Office Moving Services.

1b. The market for Medical Supply Services.

Hint: Graph will have equilibrium points 1, 2 and 3.

Answer 1

Market for office moving services:

Demand for office moving services declined from D to D1 which shift equilibrium from 1 to 2. Suppliers from office moving suppliers leave the market which shift supply curve to its left from S to S1 which will shift equilibrium point from 2 to 3. Price in long run will be same while equilibrium quantity will fall.

Market for medical supply services:

Demand for medical supply services increases which shift demand curve from D to D1 which shifts equilibrium from point 1 to 2. As office moving services producers shift to medical supply which shift supply curve to its right from S to S1 and shift equilibrium point from point 2 to 3. It will keep price at same in long run while raise output.