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Effect of market shocks on equilibrium price and quantity

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According to an article in the Wall street Journal, during 2006, the demand for full-size pickup trucks declined as a result of rising gas prices and a decline in housing construction (construction firms are an important part of the market for full-size pickup trucks). At the same time, Toyota began production of trucks at a new factory in Texas.

Briefly discuss whether this problem provides enough information to determine whether the equilibrium price and quantity of trucks increased or decreased.

If so, what would have happened to the equilibrium price and quantity of pick-up trucks?

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Solution Preview

The problem only provides enough information to determine that the equilibrium price decreased. The equilibrium quantity could have increased, decreased, or stayed the same.

The article says that the demand for trucks decreased. If supply remained constant, ...

Solution Summary

This solution shows how to determine if there is enough information to determine whether the equilibrium price and quantity of pickup trucks would increase or decrease in response to two market shocks: one affecting demand and the other affecting supply.

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Market equilibrium price and quantity (in the short run)

Please help with the following problem.

For each of the following changes, show/describe the effect on the DEMAND CURVE and state what will happen to market equilibrium price and quantity (in the short run).

a. Consumers expect that the price of the good will be higher in the future.
b. The price of a substitute good rises.
c. Consumer incomes fall, and the good is normal.
d. Consumer incomes fall, and the good is inferior.
e. A medical report is published showing that this good is hazardous to your health.
f. The price of the good rises.

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