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    How supply shocks affect supply and demand curves.

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    Consider the following event: Due to severe damage, a gas pipeline supplying gas to Arizona was shut down for a few weeks in the summer of 2003. Gas became scarce in Arizona, and prices rose, causing consumers to panic.

    Address the following questions in your analysis of this event's affect on the market equilibrium:

    1. Was there a shift in the supply curve, demand curve or both?

    2. Did the shift happen to the left or to the right?

    3. describe the direction of the shift in the supply curve, demand curve, or both.

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    Solution Preview

    Supply shocks generally have a twofold effect on the market. Firstly, the supply is seriously reduced, moving the supply curve to the left, which increases ...

    Solution Summary

    How supply shocks affect supply and demand curves.