Question

Show the affect of each of the following situations. Draw a graph for each letter. Numbers are not necessary with these graphs. However, each graph should have

demand curve, a supply curve and a new point of equilibrium when, and IF one of the curves shifts. Show how the curve shifts with an arrow pointing to either the new supply curve or the new demand curve or a D1 to D2 or S1 to S2.

Example: Wool sweaters become more popular with college students.

pts for each

a. There is an increase in the population in this market.

b. Consumer incomes goes down.

c. The price of cotton undershirts goes up----way up. (hint…you need cotton undershirts to tolerate wool sweaters

d. A study shows wool sweaters causes eczema

e. The cost of wool yarn has decreased significantly.

f. Wool sweater retail stores mis-read the market and raise price 20 %.

Answer 1

a. Because of increase in advertisement expenses, the demand curve will shift outward:

The figure above shows the original demand curve DD and original supply curve SS. The demand curve shifts to D'D' and there is no change in the supply curve.

b.

Because of increase in consumer income, the demand curve will shift outward:

The figure above shows the original demand curve DD and original supply curve SS. The demand curve shifts to D'D' and there is no change in the supply curve.

c. The price of milk going will not shift either the demand or supply curve. This will cause the quantity demanded to go down and quantity supplied to go up.

d. Because of the study, the demand curve will shift outward. However, this will have no effect on the supply curve: