Question

Market balance In this activity you must apply the market equilibrium behavior, social surplus and consumer and producer surpluses. Before completing the table, make a graph. Start with the intersection of the demand and supply curves to establish the point, the price and the initial equilibrium amount. Then, analyze each situation and identify the curves to move to find the point, the price and the amount of final equilibrium, comparing it with the initial, then you can fill the table.

PS. Remember to ad the tables and graphics

Answer 1

In the diagram below, we have shown downward sloping demand curve and upward sloping supply curve. Market equilibrium is attained at the point where demand curve intersects supply curve, i.e, equilibrium price is P* and equilibrium quantity is Q*.

Price Supply Demand Quantity Q*

1) If tastes and preferences for a product gets reduced this season, demand curve shifts to its left. As a result, equilibrium price rises whereas, equilibrium quantity falls.

2) For a particular good, if 75 producers enters the market, supply curve of the product shifts to the right. As a result, equilibrium price will fall but equilibrium quantity must rise.

3) If consumer expectations are negatively affected about future use of a product, its demand curve will shift to the left. As a result, equilibrium price rises whereas, equilibrium quantity falls.

4) With progress in technology, production and efficiency of a product increases. As a result, supply curve shifts to the right. This will cause equilibrium price to fall but equilibrium quantity must rise.