Question

Suppose that scooter workers accept a pay cut of 2 dollars per hour. 19. Draw a graph to show how this would affect the market for scooters. 20. Why does this shift occur? How does that affect the equilibrium price and quantity? Explain

Answer 1

Answer (19) :

Pay out results in an increased demand for scooters in the short- \r\n Please find above the demands curve of the scooter market. In the above graph, the x axis denoted the price of scooters and the Y axis denotes the quantity of scooters demanded in the market. D2D2 denotes the demand curve for scooter before the pay cut was accepted, and D1D1 denotes the demand curve of scooters after the pay cut was accepted by the workers. Since the workers have accepted a pay cut od 2 dollars per hour, this means that the employer wants to reduce the cost of production of scooters. There are two sides to the after affects of this pay cut. Let us discuss the side that reflects the demand for scooters in the market first. s a result of the pay cut, the employer now earns more from the cost of production (wages) being reduced. This accumulated money can be now utilized for more production, or in order to attract more customers

                             Please find above the demands curve of the scooter market. In the above graph, the x axis denoted the price of scooters and the Y axis denotes the quantity of scooters demanded in the market. D2D2 denotes the demand curve for scooter before the pay cut was accepted, and D1D1 denotes the demand curve of scooters after the pay cut was accepted by the workers.

                           Since the workers have accepted a pay cut od 2 dollars per hour, this means that the employer wants to reduce the cost of production of scooters. There are two sides to the after affects of this pay cut. Let us discuss the side that reflects the demand for scooters in the market first. As a result of the pay cut, the employer now earns more from the cost of production (wages) being reduced. This accumulated money can be now utilized for more production, or in order to attract more customers, the employer may decrease the price of scooters in the market, this increasing the demand of scooter in the market. This is the reason why the demand curve for scooters (D2D2) shift towards the right (D1D1). This is a result of the reduction in prices and the corresponding increase in the demand for scooters.

Answer (20): The Shift in the demand curve from left to right occurs as the price on scooters increase the demand for scooters increase, which also shifts the quantity of scooters demanded in the market. In the above graph, the market demand curve for scooters moves from D2D2 to D1D1 on the right. As a result of this movement to the right, the equilibrium of the market for scooters destabilizes. The equilibrium quantity demanded for scooters rise, thus increasing the price of scooters. This increase quantity and price create a new demand curve and the equilibrium of the scooter market shifts, and in a dew course again attains equilibrium, as due to increased demand, the manufacturer will now producers more scooters and hence the market will receive more supply of scooters. This will also shift the supply curve, which will increase too and hence a new equilibrium will be formed.