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Demand and Supply concept

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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 m 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.

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A file with a detailed step-by-step discussions including graphs is attached.

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.

Answer: This scenario will force the supply curve to shift inwardly resulting to increase in the price of mineral products. (The attached file discusses these effects in a graph.)

b) The wheat ...

Solution Summary

This solution discusses how the demand and supply curve changes given a specific market situation.

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