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Supply and demand analysis to predict price and quantity

Directions: For each question, draw a market in equilibrium, labeling the initial equilibrium price and equilibrium quantity. Then shift the appropriate curve and label the new equilibrium price and equilibrium quantity. Next, fill in the blanks to describe what happened.

1. The price of a substitute for this good increases:

The equilibrium price will ­­­­_______________ and the equilibrium quantity will _______________.

2. There is a decrease in income and this is a normal good:

The equilibrium price will ­­­­_______________ and the equilibrium quantity will _______________.

3. There is a decrease in the price of a relevant resource used to produce this good:

The equilibrium price will ­­­­_______________ and the equilibrium quantity will _______________.

4. There is a decrease in the number of sellers of this good:

The equilibrium price will ­­­­_______________ and the equilibrium quantity will _______________.

5. Sellers expect the price of this good to fall in the future:

The equilibrium price will ­­­­_______________ and the equilibrium quantity will _______________.

6. There is a decrease in taxes on producers of this good:

The equilibrium price will ­­­­_______________ and the equilibrium quantity will _______________.

7. There is a decrease in preferences for this good:

The equilibrium price will ­­­­_______________ and the equilibrium quantity will _______________.

8. There is an increase in the number of buyers of this good:

The equilibrium price will ­­­­_______________ and the equilibrium quantity will _______________.

9. What will happen if buyers expect the price of this good to rise in the future and, at the same time, there is an improvement in the technology used to produce this good, and demand shifts by less than supply shifts?

The equilibrium price will ­­­­_______________ and the equilibrium quantity will _______________.

10. What will happen if there is an increase in income and this is an inferior good and, at the same time, subsidies to producers rise, and demand and supply shift by equal amounts?

the equilibrium price will ­­­­_______________ and the equilibrium quantity will _______________.

Solution Preview

1. When the price of a substitute for this good increases, the demand for the cheaper good will increase. This will cause a rightward shift in the demand curve. When demand curve shifts, there is movement along the supply curve to the new equilibrium price. Thus, equilibrium price will increase, and equilibrium quantity will increase.

2. A normal good is a good the consumption of which rises as income rises. So when there is a decrease in income, there will be a leftward shift in the demand curve for this good. This will lower the price of the good, and decrease quantity (the opposite of #1). See attached file "demand".

3. When there is a decrease ...

Solution Summary

Supply and demand analysis to predict price and quantity after market adjustments.

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