Question

Given the products below and the events that affect them, indicate what happens to demand, supply, equilibrium quantity, and equilibrium price. Identify the determinant of demand and supply that causes the shifts.

a. Calculators. More schools require students to buy and use calculators; improved productivity shortens the time it takes to make calculators.
b. Gasoline. Oil production declines due to a crisis in the Middle East; people take more car vacations and drive more.
c. New homes. The average incomes fall as the economy moves into recession; the productivity of home construction workers and builders increases.
d. Tobacco. The government cut its subsidy to tobacco farmers; more people quit smoking.

Answer 1

a. Increase in demand, Increase in supply & increases equilibrium quantity.

b. Decrease in supply, Increase in demand & increases the equilibrium price.

c. Decrease in demand, Increase in supply & decreases the equilibrium price.

d. Decrease in supply, decrease in demand & decreases the equilibrium price

Step-by-step explanation:

a. More students imply increase in demand of calculators. Improved productivity implies increase in supply of calculators. Rightwards shift in demand & leftwards shifted supply increases equilibrium quantity.

b. Oil production decline implies decrease in supply. People's taste & preferences for vacations implies increase in demand. Rightwards shift in demand & leftwards shift in supply increases the equilibrium price.

c. Fall in income implies decrease in demand. Increase in construction workers' productivity implies increase in supply. Rightwards shift in demand & leftwards shift in supply increases the equilibrium price.

d. Decrease in subsidy imply decrease in supply. It also implies decrease in demand. Leftwards shift in demand & supply decreases the equilibrium price.