Question

1. Now consider the demand curve for smart phones. Suppose consumers begin expecting that the price of smart phone will increase significantly in the upcoming months. What would happen to the demand curve for smart phones today?
2. What happens to the supply curve for a product if the cost of inputs required to produce that product increases? (Example: Suppose political unrest in the middle east causes the price of oil to increase. Oil is used to produce plastic, which in turn is used to produce water bottles and plastic shopping bags. What happens to the cost of producing water bottles and plastic bags due to the political unrest in the middle east?)
3. What happens to the supply curve for a product if the producers begin expecting that the price of that product will increase in the upcoming months?
4. Now consider the supply curve for smart phones. Suppose researchers come up with a new display technology that makes the production of OLED screens for smart phones cheaper and easier to produce. What happens to the supply curve for smart phones?
5. Consider the market for textbooks. Plot the demand and supply curves for textbooks. Make sure to show the equilibrium price and equilibrium quantity produced in this market. What happens to the demand curve for textbooks when the Fall quarter begins across universities in the USA? What happens to the equilibrium price and equilibrium quantity produced of the textbooks?

Answer 1

a) Demand curve will shift to the right ( increase). The equilibrium price and quantity will increase.

b) Supply curve will shift to the left ( decrease) due to higher cost of production. The equilibrium price of plastic bags and water bottles will increase and quantity will fall.

c) Supply curve will shift to the left ( decrease) due to expectations of higher price in the near future. The equilibrium price of the product will increase and quantity will fall.

d) Supply curve for smart phones will shift to the right ( increase) due to lower cost of production. The equilibrium price of the product will decrease and quantity will increase.