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how changes in supply and demand affect equilibrium P and Q.

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Consider the demand and supply curves for several markets - the market for mineral resources, the market for wheat, the market for sugar, and the market for motor homes. Indicate whether the effect of each of the following is an upward or downward movement along a given demand (or supply) curve, i.e. no effect on demand or supply, or instead involves an outward or inward shift in the relevant demand (or supply) curve for the product in question. How will the market equilibrium price and quantity change from the original equilibrium? (Note: Think only about the short-run effects of these changes and do not concern yourself with the multiple shifts due to long-run effects.) Explain your answers.

a) The mineral market: The costs of producing mineral resources rise as the resources are depleted and it becomes harder to extract the mineral deposits from the earth.

b) The wheat market: Due to floods in the Midwest, half of the wheat crop in the United States is destroyed. At the same time, the price of oats (a substitute for wheat) decreases due to a sharp rise in the number of farmers growing oats in response to consumer demand for health food.

c) The sugar market: There is a drought in the sugar cane fields of Hawaii.

d) The motor home market: There is a decrease in the average price of new motor homes.

Please use a chart similar to the following:

Market Demand Curve Supply Curve Equilibrium
Price Equilibrium Quantity
Minerals
Wheat
Sugar
Motor Homes

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Consider the demand and supply curves for several markets - the market for mineral resources, the market for wheat, the market for sugar, and the market for motor homes. Indicate whether the effect of each of the following is an upward or downward movement along a given demand (or supply) curve, i.e. no effect on demand or supply, or instead involves an outward or inward shift in the relevant demand (or supply) curve for the product in question. How will the market equilibrium price and quantity change from the original equilibrium? (Note: Think only about the short-run effects of these changes and do not concern yourself with the multiple shifts due to long-run effects.) Explain your answers.

a) The mineral market: The costs of producing mineral resources rise as the resources are depleted and it becomes harder to extract the mineral deposits from the earth.

Costs of production are one of the determinants of supply. As a result a change in costs of production leads to a shift in of supply. Rising costs imply that at any price ...

Solution Summary

In the solution several scenarios are presented that involve determinants of supply and demand. The changes lead to a shift in supply and/or demand. I explain the results that these effects have on market equilibrium Price and Quantity.

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