Question

  
For each of the following items, identify the direction of the change in demand and/or supply for the good in question (indicated in italics), and determine the direction of the change in equilibrium price and quantity—using fully-labelled diagrams throughout. If a price or quantity outcome is uncertain, make the reason for the uncertainty clear.  

13.    Spruce wood used in the production of acoustic guitars becomes more expensive, while the number of guitar players increases.  

14.    The government of China, a world leader in the production of cucumbers, increases subsidies on the production of the vegetable, while carrots (a substitute good) decrease in price.

Answer 1

13.Price would rise because supply would fall due to higher cost of production and demand would rise due to increase in number of guitar players.If the rise in demand and fall in supply are exactly in proportion,then quantity would remain unchanged.If increase in demand>decrease in supply-increase in quantity and vice versa.

14.Demand would fall due to fall in the price of substitute.Supply would rise due to increased subsidy.Price would fall.If increase in supply is>decrease in demand-quantity will rise.If increase in supply=decrease in demand-no change in quantity.