Question

Answer each of the questions on your paper and/or in a computer file. To receive credit, you

must show all work.

1. Use supply and demand analysis to evaluate each of the situations below. Illustrate
each market graphically. Indicate the factor affecting demand or supply that is involved.
Be sure to state what happens to the equilibrium price and quantity.

a. China’s population shrank in 2022 for the first time since the 1960s. If that trend
continues, how will that affect the market for cars in China?

b. Suppose real estate developers can build either housing or office buildings on
land they own. How will a decrease in housing prices affect the market for office
buildings?

c. Many restaurants went out of business during the pandemic. Suppose that
restaurant customers think the price of restaurant meals will be higher next year.
How will these two events affect the market for restaurant meals now?

Answer 1

The market for cars in China would see a decrease in both equilibrium price and quantity due to a shrinking population. A decrease in housing prices leads to increased supply of office buildings, potentially reducing their price but increasing quantity. Expectations of higher restaurant prices in the future, coupled with closures, may increase current prices while the effect on quantity depends on the magnitude of demand and supply shifts.

Step-by-step explanation:

Supply and Demand Analysis of Various Market Scenarios

To evaluate economic situations using supply and demand analysis, we need to graphically illustrate the market and identify factors affecting demand or supply. Equilibrium price and quantity are determined where these curves intersect. By examining the impact on these curves, we can predict changes in the market.

1. China's Shrinking Population Impact on Car Market:
   If China's population continues to decrease, the demand for cars would likely diminish. A smaller population generally leads to fewer car buyers, shifting the demand curve to the left. Consequently, the equilibrium price and quantity of cars would decrease.
2. Decrease in Housing Prices Impact on Office Buildings Market:
   A decrease in housing prices might motivate real estate developers to shift resources from housing to constructing office buildings. This would increase the supply of office buildings, shifting the supply curve right and potentially decreasing the equilibrium price while increasing the quantity of office buildings, assuming demand remains constant.
3. Expectation of Higher Restaurant Prices and Business Closures Impact on Current Market:
   The closure of many restaurants decreases the supply of restaurant meals, shifting the supply curve to the left and increasing current prices. If customers expect prices to be even higher in the future, current demand might increase, shifting the demand curve to the right. These simultaneous shifts can raise the current equilibrium price and affect quantity based on the relative magnitude of the shifts.

To isolate the impacts of multiple variables changing in a market, economists analyze each change independently using lists of factors known to shift demand and supply curves.