Question

For each of the following situations, draw a graph showing the shifts of the curve, explain the reason for the shift(s), and the effect on the equilibrium price and quantity in the market for bicycles.

a) The price of automobiles increases.
b) Consumers' incomes decrease at the same time the price of steel used to make bicycle frames increases.
d) A technological advance in the manufacture of bicycles occurs at the same time the price of bicycle helmets and shoes falls.

Answer 1

Increases in automobile prices raise demand for bicycles, higher steel prices and lower consumer incomes decrease demand and supply, and technological improvements and lower prices for related goods increase supply and demand for bicycles, affecting equilibrium price and quantity.

Step-by-step explanation:

For the given situations in the market for bicycles:

• a) If the price of automobiles increases, consumers may turn to bicycles as a more affordable transportation option, leading to a rightward shift in the demand curve for bicycles. This would cause the equilibrium price and quantity of bicycles to increase.
• b) If consumers' incomes decrease while the price of steel (used in making bicycle frames) increases, there would likely be a leftward shift in both the demand and supply curves for bicycles. A decrease in demand would lower the equilibrium price and quantity; however, a decrease in supply would raise the price and lower the quantity. The net effect would depend on the magnitude of these shifts.
• d) A technological advance in the manufacture of bicycles would likely result in a rightward shift of the supply curve, reducing costs and increasing production efficiency, thus lowering the price and increasing the quantity of bicycles. At the same time, if the price of bicycle helmets and shoes falls, it could increase the demand for bicycles, thereby further increasing the equilibrium quantity, while the effect on price would depend on the relative shifts of supply and demand.