Question

For each of the following markets, indicate whether the stated change causes a shift in the...

For each of the following markets, indicate whether the stated change causes a shift in the supply curve (a change in supply), a shift in the demand curve (a change in demand), a movement along the supply curve (a change in quantity supplied) or a movement along the demand curve (a change in quantity demanded). Clearly state any assumptions you make in drawing your conclusions.

(a) The market for energy: China and India’s incomes increase over time.
(b) The market for bus tickets: the price of bicycles increases.
(c) The corn market: an environmental law reduces land available for corn production.
(d) The vodka market: the demand for Moscow mules (which have vodka in them) increases.
(e) The Moscow mule market: the price of drunken smurfs (an alternative to Moscow mules) falls.
(f) The milk market: the price of milk declines, and the amount of milk people are willing to buy increases.
(g) The market for fresh fish: the number of consumers in the area increases.

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Answer #1

(a) A movement along the demand curve occurs when a change in quantity demanded is caused only by a change in price, and vice versa. A shift in a demand curve occurs when a good's quantity demanded changes even though price remains the same.

Market for energy.

The demand curve for energy will shift to the right (increase). The equilibrium price and quantity will increase.

It is a shift of the demand curve as it is caused by a factor other than price.

b)

The market for bus tickets: the price of bicycles increases.

The demand for bus tickets will rise the demand curve will shift to the right ( increase). The equilibrium price and quantity will increase.

Buses and bicycles are substitute goods. If price of a substitute good increases, then demand for the good under consideration will increase. It is a shift of the demand curve.

c)

The corn market:

The supply of corn will fall. The supply curve will shift to the left (decrease). The equilibrium price will increase and quantity will fall. This is a shift in the supply curve to the left.

d) Vodka and Moscow mules are complementary products. When the demand for Moscow mules increases, the demand for Vodka will increase. The demand curve will shift to the right ( increase). The equilibrium price and quantity will increase.

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