Question

Market SHOCKS Graphs.

For each graph 17–25,  show the Shift in Demand or Supply that will happen ON EACH GRAPH given event described. Below each Graph predict what happens to Equilibrium Price and Quantity (up or down). Put: Up, Down, or “?” (can’t tell).

DOUBLE SHIFT -- Incomes FALL, and frozen French Fries are considered an INFERIOR good to consumers; while at the same time, Potato crops are abundant this year, due to excellent weather!

Price S, Cost D, value Quantity

P: _____    Q: _____

Answer 1

ANALYSIS OF THE PROBLEM-

From the given condition we can say that as frozen french fries are an inferior good for the consumer and the income of the consumers is falling hence the demand of the frozen french fries will increase because of the fall in income of the consumer.

The weather has been very favourable for the growth of the potato and due to this there will be greater productivity of potatoes and hence the supply of the frozen french fries will also increase because of the good yield of potato.

Diagram is given as follows-

RICE 9R E,

When the demand was D and the supply was S the equilibrium price was E and equilibrium quantity was Q.

Now due to the increase in supply the new supply will shift to S1 and due to the increase in demand the new demand will shift to D1. The new equilibrium price  will be same depicted by E1 but the equilibrium quantity will increase and will reach to Q1.

Hence

equilibrium price - no change

equilibrium quantity - up