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# Effects of various actions on equilibrium

For the following events, tell me what happens as a result of the following events.
You do not have to draw any graphs.
1. Please tell me what happens to the equilibrium price, and equilibrium quantity.
2. With regards to whether demand or supply changes, please use a plus sign (+) for the increase and a minus sign (-) for the decrease.
3. Remember - what group is primarily affected by the event - think of the factors that shift demand and supply
4. If you have questions, be sure to ask!

1. Several new companies enter the PC industry.
2. Consumers decide that SUVS are too dangerous.
3. The surgeon general issues a report that says that eating tomatoes reduces colds.
4. Tiger skins and caviar become all the rage due to the latest movies and fashions.
5. The price of Budweiser falls - what happens to the market for Miller? (assuming that the 2 are substitutes).
6. The price of DVD players falls - what happens to the market for DVD's?
7. People get scared about the West Nile virus (effect on the market for insect repellents).
8. The government decides to put a quota on the amount of steel that can enter the United States.
9. Senator Jones gets a bill passed that sets a price ceiling at \$1.50 for cigarettes, when the market price was \$2.00.
10. A bill is passed that sets a price floor on tomatoes at \$1.50 when the market price was \$2.00.

#### Solution Preview

The best way to visualize these problems is with a graph. Whenever the supply increases move the supply curve down. Whenever demand increases, move the demand curve up. See attached file.

1. +supply, moves the supply curve out, equilibrium quantity will increase.
Because demand is unchanged, price will fall.

2. - supply, opposite of no. 1.

3. + demand, moves ...

#### Solution Summary

This solution reviews how various actions affect supply and demand and therefore equilibrium.

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