Question

Using the Market Balance graph, analyze the following situations. Indicate the determinants of supply and demand and analyze how the equilibrium price and quantity of the market changes.Consider the following changes in the demand and supply of good X, if everything else constant (ceteris paribus) from the initial equilibrium . Graph each subsection. to. The income of consumers of good X increases, with X being a lower good, and the price of the raw materials used to produce X decreases. b. The price of Y (substitute in consumption of X) falls and the price of a substitute good in production of X rises. c. The consumer thinks that the price of X will increase (expected price) and the wages of the workers who produce X will decrease. d. A new, more efficient technology is introduced to produce X.

Answer 1

a. Income of consumers of good X decreases, so demand for good X decreases.

The price of raw materials used to produce good X decreases, So Supply of good x increases.

Equilibrium Price falls. Changes in Equilibrium quantity is Ambiguous.

b. The price of Y falls , so the demand for good X falls.

Price of substitute good in production rises, so supply of good X rises.

Equilibrium Price falls and equilibrium Quantity is Ambiguous.

c. If the consumer thinks that price of good X will increase, there will be a rise in demand for the good x today.

Wages of the workers who produce good X decreases, Supply will rise as cost of production falls.

Equilibrium quantity rises and Equilibrium Price is Ambiguous.

d. More efficient technology for production of good x means supply of good x increases.

Equilibrium Price falls and equilibrium Quantity rises.