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Demand, Supply and Market Equilibrium

1. Using the demand curve shifters (PYNTE), explain whether each of the following will increase or decrease demand for cell phones. Tell whether the demand curve shifts to the right or to the left.

a. A decrease in the incomes of consumers of cell phones.
b. An increase in the price of apps for cell phones.
c. An increase in the number of consumers in the market for cell phones.

2. Using the supply curve shifters (SPEND) explain whether each of the following will increase or decrease the supply of cell phones. Tell whether the supply curve shifts to the right or to the left.

a. The market price of the glass used in cell phone screens increases.
b. The number of firm that make cell phones increases.
c. Cell phone manufacturers expect the market price of cell phones to increase next month.

3. Read the following article regarding Cap and Trade policies.

http://online.wsj.com/article/SB10001424052702304620304575165843688369042.html?mod=WSJ_hpp_sections_news

a. What is a good or service market that might be affected limiting pollution via the cap and trade policy as described in the article? Explain.

[For simplicity, do not choose "jobs" or employment. Choose a good or service that would have its supply or demand affected by the cap and trade policy.]

b. Which of the shifters that shift either supply or demand (SPEND or PYNTE) does a Cap and Trade policy affect in the market you chose in Part (a)? Which curve (supply or demand) would shift in response to the policy? Will it increase or decrease?

c. Draw a supply and demand graph. Start with an initial equilibrium like you see on Slide #25 in the Attend section. Shift the curve in the direction that you chose in the previous section. Find the new equilibrium. (You do not need to turn in your graph. It is for your own use.)

Did equilibrium price increase or decrease? Did equilibrium quantity increase or decrease?

Solution Preview

In compliance with BrainMass rules this is not a hand in ready assignment but only guidance.

1. A) a decrease in the income of cell phone users decreases the demand for cell phones. At the same price, fewer cell phones will be sold because the income has gone down. The demand curve will shift to the left.
b), an increase in the prices of apps for cell phones will decrease the demand for cell phones. Apps are complementary products. Users of cell phones require apps. The decrease in demand means the demand curve will shift to the left.
c), an increase in the number of consumers in the market for cell phones increases the demand for cell phones. As there are more customers for cell phones, at the same prices more cell phones are ...

Solution Summary

This solution explains issues related to demand, supply and market equilibrium. The sources used are also included.

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