Question

1. Describe the law of demand. 2. Describe the law of supply 3. Draw a supply and demand diagram. Label each axis, the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity. 4. Cons demand curve shifts to the right. This will create a new equilibrium price and ider that a market begins in equilibrium. If there is an increase in demand, it means that the quantity a. Compared to the old equilibrium price, is the new equilibrium price higher or lower? Compared to the old equilibrium quantity, is the new equilibrium quantity higher or lower

Answer 1

Answer : 1) Law of demand : The law of demand states that if price rise then quantity demanded decrease and if price fall then the quantity demanded increase.

2) Law of supply : The law of supply states that if price rise then the quantity supplied increase and if price fall then the quantity supplied decrease.

3) In the following diagram the demand curve is D and the supply curve is S. In the diagram E is the equilibrium point. The equilibrium price is P and the equilibrium quantity is Q.

4) In the following diagram the initial equilibrium point is E. At point E the equilibrium price is P and quantity is Q.

Now, demand curve shifts to rightward due to increase in demand. The new demand curve is D'. The new equilibrium point is E₁ . New equilibrium price is P₁ . New equilibrium quantity is Q₁ .

a) From the above diagram it is clear that the new equilibrium price P₁ is higher than the old price level P.

The new equilibrium quantity Q₁ is higher than the old quantity level Q.