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    Supply and Demand Graphs.

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    For each of the following, draw a separate diagram for each of the following markets. Demonstrate what happens to the Supply and Demand graphs with your answer. Describe what happens to equilibrium price and quantity.
    (Hint: Remember the difference in a change in demand [or supply] and a change in quantity demanded [or supplied]. Also, not every event requires a shifting of both curves - unless appropriate).
    A. U.S. new construction residential housing market.
    Event: A severe economic recession such as the country recently experienced reduces incomes nationwide.
    B. U.S. air travel market.
    Event: American Airlines unexpectedly folds (ceases operations) overnight.
    C. The U.S. domestic car market.
    Event: The price of foreign cars increases due to an exchange rate shock.
    D. The market for large SUVs.
    Event: A change in the price of gasoline in the U.S. rises by 33 cents each week for 6 consecutive weeks, then stabilizes at the new high price.

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    Solution Preview

    For Instructional Purpose Only. Please derive your answer and graph from the illustrations. Thanks.

    A. U.S. new construction residential housing market.
    Event: A severe economic recession such as the country recently experienced reduces incomes nationwide.
    In this scenario, the U.S. new construction residential housing market must have built high numbers of houses in anticipation that there would be demands for them. Under normal economic situation, supply and demand for residential housing is efficient (attains equilibrium). With an unforeseen event such as severe economic recession, firms will experience huge decrease in demand of their products and (or) services (P&S) because there would be high decrease in circulation of money. When this happens, households would greatly decrease their spending on P&S. Consequently, firms would have to decrease their employees' capacity, which creates high unemployment ...

    Solution Summary

    Shifts and movements in supply and demand of products on a graph are examined.

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