If individuals decide to have more children, they will need larger vehicles for transportation, which will cause an increase in the demand for minivans. However, this increase in demand will not affect the supply of minivans. As a result, both the price and quantity of minivans sold will go up (Figure 12).
Additionally, when steel workers go on strike, it causes an increase in steel prices. This then impacts the demand for steel and leads to higher prices. Consequently, the wages of steel workers also rise and create a greater demand for home station wagons. At the same time, as domestic steel costs increase due to rising input expenses, it reduces the supply of wagons.
If a strike by steelworkers causes steel prices to rise, it will lead to higher production costs for minivans and a decrease in their supply. However, the demand for minivans will remain unaffected. Consequently, the price of minivans will increase and there will be a decline in sales.
Alternatively, when engineers develop new automated machinery for manufacturing minivans, it improves technology and production capabilities. Therefore, opting to adopt these technological advancements will result in an increase in domestically produced minivan supply.
The development of new automated machinery for producing minivans represents a technological improvement that reduces production expenses for companies. This cost reduction contributes to an increase in the supply of minivans.
The prices of minivans have decreased due to a constant demand, resulting in an increase in sales. This increase in supply has caused the price to go down and the quantity to go up. On the other hand, sports utility vehicles have become more expensive due to various pricing factors. The decision-making process is influenced by related pricing elements. As a result, there has been a surge in demand for alternatives like minivans instead of household station wagons. Figure 4-4 demonstrates how the increased price of sport utility vehicles affects the demand for minivans and leads to an increased demand for them.
Supply is unchanged. The equilibrium price and quantity of minivans both increase E. A stock market crash decreases people’s wealth. NAS: The stock market crash reduces people’s property, leading to a decrease in demand for home Wagon (wagon is a usual household goods), supply remains the same. As shown in Figure 4-7, the prices and quantities of home station wagons decrease. NAS in: The decrease in people’s wealth caused by a stock-market crash results in a decrease in their income, which leads to a decline in the demand for minivans, since minivans are likely a normal good.
Supply is not affected. Hence, both the equilibrium price and the equilibrium quantity decline. Demand decreases, and this leads to a decrease in supply. Consequently, the quantity certainly falls, and the change in the price is uncertain. 4. Consider the markets for DVD movies, TV Screens, and tickets at movie theaters. A. For each pair, identify whether they are complements or substitutes: DVD’s and TV screens, DVD’s and movie tickets, TV screens and movie tickets. A. Answer: DVD and TV are complementary goods because it is impossible in the absence of the TV watching DVD.
DVDs and movie tickets are essentially interchangeable because a film that can be watched in the theater can also be viewed at home. Similarly, TVs and movie tickets serve as viable alternatives for the same reasons. Moreover, DVDs and TV screens complement each other while DVDs and movie tickets act as substitutes. Likewise, TV screens and movie tickets can also be considered as substitutable options.
Now, let’s assume a technological advancement has reduced the manufacturing cost of TV screens. Consequently, the supply curve for TVs will shift to the right, indicating an increase in quantity supplied. However, this change will have no impact on the demand curve for TVs.
Technological improvement has a significant impact on the market for TV screens. It leads to a decrease in the equilibrium price and an increase in the equilibrium quantity, as depicted in Figure 4-8. This is mainly due to the rightward shift of the supply curve resulting from reduced production costs for TV screens, while the demand curve remains unaffected. Consequently, both the equilibrium price and quantity experience changes.
To fully comprehend how this technological advancement influences other markets, additional diagrams are necessary. Specifically, it is crucial to illustrate its effects on the DVD and movie ticket markets. Since TV screens and DVDs are complementary goods, a decline in TV prices triggers a surge in demand for DVDs.
The increase in demand for DVDs led to an increase in both equilibrium prices and quantity, as shown in Figure 4-9. The decrease in prices of TV screens would cause a higher demand for DVDs since they are complementary products (NAS in). This rise in DVD demand results in an increase in both equilibrium price and quantity (NAS 2). Conversely, if the prices of TV movie tickets decrease due to being substitutes, the demand for movie tickets decreases, leading to a decline in both equilibrium prices and ticket sales volume (Figure 4-6).
The stock market crash was caused by income factors, resulting in a decrease in people’s dividend income. This led to reduced demand for home station wagons and a decline in the demand for movie tickets due to the price reduction of TV screens, as these two items are substitute goods. Consequently, both the equilibrium price and quantity sold of movie tickets decreased.
According to a survey, drug use among young people is increasing. Two hypotheses explain this trend: firstly, there has been a reduction in police efforts leading to increased availability of drugs on the street; secondly, cutbacks in education efforts have resulted in decreased awareness of the dangers associated with drug addiction. These hypotheses can be represented using supply-and-demand diagrams.
Hypothesis I suggests that an increase in drug supply would shift the supply curve to the right (figure 1), causing a decrease in price and an increase in quantity consumed. Hypothesis II proposes that an increase in drug demand would shift the demand curve to the right (figure 2), resulting in an increase in both price and quantity consumed. Therefore, reducing the police force would lead to an increase in drug supply.
The text suggests that in Figure 1, drug-equilibrium prices cause an increase in the equilibrium quantity. On the other hand, if education investment is reduced, it will lead to a higher demand for drugs, resulting in an increase in both the equilibrium price and quantity as shown in Figure 2. To differentiate between these explanations, information on drug prices can be used. The hypotheses are as follows: Hypothesis I states that the price decreases, while Hypothesis II proposes that the price increases. Based on the fifth equilibrium prices, it is believed that the first hypothesis would be correct.
If you examine your data, you will find the point at which the quantity demanded is equal to the quantity supplied, which is known as the market equilibrium price. According to NAS, in this particular market, the equilibrium price is $6 and the equilibrium quantity is 81.
In the scenario where the actual price in this market is above the equilibrium price, certain factors would contribute to driving the price towards equilibrium. As NAS explains, if the price were above $6.00, let’s say at $7.00, only 68 units would be demanded while 98 units would be supplied. This results in a surplus of the good, prompting producers to reduce the price until they are able to clear their excess inventory. The price will reach equilibrium once it is lowered to $6.00.
NAS: When the actual market price is higher than the equilibrium price, there is excess supply. Suppliers have found that pizza always has a backlog, so vendors reduce prices and increase sales to bring the market back to equilibrium.
C) If the actual price in this market were below the equilibrium price, what would drive the price toward equilibrium? NAS: If the price is at $5.00, there will be a shortage. 0.04 is demanded, but only 0.53 is supplied. Suppliers, seeing an opportunity to make some extra cash, will raise the price and produce more until the market clears at $6.0.
NAS: When the actual market price is lower than the equilibrium price, there is excess demand. Vendors have found that higher prices will not decrease pizza sales, so they raise prices to bring the market back to equilibrium.
1 1. Consider the following events: Scientists reveal that consumption of oranges decreases the risk of diabetes and at the same time farmers use a new fertilizer that makes orange trees more productive. Illustrate and explain what effect these changes have on the equilibrium price and quantity of oranges.
Both the former and the latter will have a positive effect on oranges. The former will create awareness of orange requirements, improving both equilibrium price and quantity. The latter will increase the supply of oranges, resulting in an increase in both equilibrium price and quantity. If both occur simultaneously, it will impact the equilibrium quantity but uncertainty remains regarding its effect on the equilibrium price. According to NAS: 1 The news about health benefits of oranges will cause demand curve to shift rightward, indicating a rise in demand. Typically, increased demand leads to higher prices. 2.
The productivity of orange trees increasing will cause the supply curve to shift right, resulting in a higher supply. This usually leads to lower prices and more oranges being bought and sold. However, since points 1 and 2 (as mentioned above) have conflicting effects on price, the actual price cannot be determined. Therefore, while the equilibrium quantity will increase, the equilibrium price is unclear.
