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Shifters of Demand and Supply

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For each of the following, explain whether it shifts the short-run aggregate supply curve, the long-run aggregate supply curve, or the aggregate demand curve (or more than one of these).

a. Households decide to save a smaller share of their disposable income.
b. There is an 8-week strike in the steel industry.
c. A drought in the Midwest causes poor wheat harvest.
d. The labor force participation rate increases

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a) Households decide to save a smaller share of their disposable income.
Sorry this statement is confusing maybe you can clarify.
"To save a smaller share" means the savings decreased (they used to save a bigger share). In this ...

Solution Summary

Supply and demand shifters are factors cause aggregate demand or aggregate supply (AS) to shift to the left or to the right depending on the situation. The sift in AS curve can be temporary (short run) or permanent (long run).

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Demand, Supply and Market Equilibrium

1. Using the demand curve shifters (PYNTE), explain whether each of the following will increase or decrease demand for cell phones. Tell whether the demand curve shifts to the right or to the left.

a. A decrease in the incomes of consumers of cell phones.
b. An increase in the price of apps for cell phones.
c. An increase in the number of consumers in the market for cell phones.

2. Using the supply curve shifters (SPEND) explain whether each of the following will increase or decrease the supply of cell phones. Tell whether the supply curve shifts to the right or to the left.

a. The market price of the glass used in cell phone screens increases.
b. The number of firm that make cell phones increases.
c. Cell phone manufacturers expect the market price of cell phones to increase next month.

3. Read the following article regarding Cap and Trade policies.

http://online.wsj.com/article/SB10001424052702304620304575165843688369042.html?mod=WSJ_hpp_sections_news

a. What is a good or service market that might be affected limiting pollution via the cap and trade policy as described in the article? Explain.

[For simplicity, do not choose "jobs" or employment. Choose a good or service that would have its supply or demand affected by the cap and trade policy.]

b. Which of the shifters that shift either supply or demand (SPEND or PYNTE) does a Cap and Trade policy affect in the market you chose in Part (a)? Which curve (supply or demand) would shift in response to the policy? Will it increase or decrease?

c. Draw a supply and demand graph. Start with an initial equilibrium like you see on Slide #25 in the Attend section. Shift the curve in the direction that you chose in the previous section. Find the new equilibrium. (You do not need to turn in your graph. It is for your own use.)

Did equilibrium price increase or decrease? Did equilibrium quantity increase or decrease?

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