Question

Learning Activity 3 The following events listed below has an impact on the market fox Car. Por each event, which curve is affected (supply or decand for Car) what directions is it shifted, and what is the resulting impact on equilibrium price and quantity of Ck? (Draw graph for each event) Questions 1. The price of car decrease in the market 2. The price of steel used to make car frames increases 3. An environmental movement shifts tastes toward bieyeling, 4. Consumers expect the price of car to fall in the future. 5. A technological advance in the manufacture of car occurs Activat

Answer 1

1) Figure 1 shows this case. When the price of the car decreases in the market, there is no shift in the supply and demand curve. As price falls to P2, the quantity of cars demanded increases from Q1 to Q3 (because according to law of demand, as the price of cars falls, the quantity demanded of cars should rise) and the quantity of cars supplied falls from Q1 to Q2 (because sellers now get a lower price for the cars they produce).

Price of ($) car 5. ته f, Р. Q, & Q3 Qon 1 до

Figure 1

2) Figure 2 shows this case. As steel is an input that goes into the production of car, the price rise of steel means it becomes less profitable for the firms to produce cars since their costs have increased. Therefore, supply curve shifts from S1 to S2.

Curve affected : Supply curve

Direction in which the affected curve is shifted : Leftward from S1 to S2

Impact on equilibrium price : Increases from P1 to P2

Impact on equilibrium quantity: Falls from Q1 to Q2

Price of car ($) so si P2 P РІ Q, 8, лопату 4 аль

Figure 2

3) Figure 3 shows this case. If an environment movement shifts tastes towards bicycling, this would mean that the consumers demand less of cars. Demand for cars shifts from D1 to D2.

Curve affected : Demand curve

Direction in which the affected curve is shifted : Leftward from D1 to D2

Impact on equilibrium price : falls from P1 to P2

Impact on equilibrium quantity: Falls from Q1 to Q2

Price of car car ($) ņi P2 -Di D2 Quantity of to cars

Figure 3

4) Figure 4 shows this case. As consumers expect the price of cars to fall in future, they would demand less of the cars now in the hope that they could buy a car for lower price in the future. This would mean that the consumers demand less of cars. Demand for cars shifts from D1 to D2.

Curve affected : Demand curve

Direction in which the affected curve is shifted : Leftward from D1 to D2

Impact on equilibrium price : falls from P1 to P2

Impact on equilibrium quantity: Falls from Q1 to Q2

Price of car car ($) ņi P2 -Di D2 Quantity of to cars

Figure 4

5) Figure 5 shows this case. A technological advancement in the manufacture of car would mean that producers can now produce car at a cheaper price. Therefore, supply curve would shift from S1 to S2.

Curve affected : Supply curve

Direction in which the affected curve is shifted : rightward from S1 to S2

Impact on equilibrium price : falls from P1 to P2

Impact on equilibrium quantity: rises from Q1 to Q2

Price of car ($) S2 Vipal Di Q1 Q2 Quantity of cars

Figure 5

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