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Example Demand Supply

The document analyzes the impact of various events on the demand, supply, equilibrium quantity, and equilibrium price of four products: calculators, gasoline, new homes, and tobacco. Each scenario identifies the determinants causing shifts in demand and supply, with outcomes varying based on the magnitude of these shifts. Overall, the document illustrates how changes in consumer preferences, income, technology, and government policy influence market dynamics.

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nishat.chayan
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11 views2 pages

Example Demand Supply

The document analyzes the impact of various events on the demand, supply, equilibrium quantity, and equilibrium price of four products: calculators, gasoline, new homes, and tobacco. Each scenario identifies the determinants causing shifts in demand and supply, with outcomes varying based on the magnitude of these shifts. Overall, the document illustrates how changes in consumer preferences, income, technology, and government policy influence market dynamics.

Uploaded by

nishat.chayan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Given the products below and the events that affect them, indicate what happens to

demand, supply, equilibrium quantity, and equilibrium price. Identify the determinant
of demand and supply that causes the shifts.
(a) Calculators. More schools require students to buy and use calculators; improved
productivity shortens the time it takes to make calculators.
(b) Gasoline. Oil production declines due to a crisis in the Middle East; people take
more car vacations and drive more.
(c) New homes. The average incomes fall as the economy moves into recession; the
productivity of home construction workers and builders increases.
(d) Tobacco. The government cut its subsidy to tobacco farmers; more people quit
smoking.

Here’s how demand, supply, equilibrium quantity, and equilibrium price change for each
scenario, along with the relevant determinants:

(a) Calculators

 Demand: Increases (more schools require students to buy calculators).


o Determinant: Change in consumer preferences (education policy).
 Supply: Increases (improved productivity reduces production time).
o Determinant: Change in technology/productivity.
 Equilibrium Quantity: Increases (both demand and supply increase).
 Equilibrium Price: Uncertain—depends on the magnitude of shifts. If demand rises
more than supply, the price rises; if supply rises more than demand, the price falls.

(b) Gasoline

 Demand: Increases (more people take car vacations and drive more).
o Determinant: Change in consumer preferences.
 Supply: Decreases (oil production declines due to crisis).
o Determinant: Change in input prices (reduced oil supply).
 Equilibrium Quantity: Uncertain—depends on the magnitude of shifts.
 Equilibrium Price: Increases (demand rises while supply falls, pushing prices up).

(c) New Homes

 Demand: Decreases (average incomes fall due to recession).


o Determinant: Change in consumer income (normal good).
 Supply: Increases (higher productivity in home construction).
o Determinant: Change in technology/productivity.
 Equilibrium Quantity: Uncertain—depends on the strength of the shifts.
 Equilibrium Price: Decreases (demand falls, and supply increases, pushing prices
down).

(d) Tobacco

 Demand: Decreases (more people quit smoking).


o Determinant: Change in consumer preferences.
 Supply: Decreases (government cuts subsidies to tobacco farmers).
o Determinant: Change in government policy (subsidy reduction).
 Equilibrium Quantity: Decreases (both demand and supply decline).
 Equilibrium Price: Uncertain—depends on which shift is stronger. If demand falls
more than supply, the price falls; if supply falls more than demand, the price rises.

Let me know if you need further clarification! 😊

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