Question

Assume that you are about to buy an apartment in Mersin, and noticed that they are sold at 250 000TL and 26 units per day. a) Show the equilibrium on the figure. B) Construction costs increased noticeably due to inflation. C) Consumers are negatively affected due nuclear power plant in Mersin. D) Change in demand is smaller in change in supply. E) Show the old and new equilibrium on the figure and explain how much quantity and prices are likely to change:

Answer 1

When consumers are negatively affected, demand decreases. The demand curve shifts leftward, decreasing price and decreasing quantity. At the same time, when construction costs increase, producers decrease production, so supply decreases. The supply curve shifts leftward, increasing price and decreasing quantity.

The net effect is a definite decrease in quantity. But price may increase, decrease or stay the same, depending on the relative shifts in the curves. Since it's stated that change in demand is smaller than the change in supply, it means that price will increase.

In the graph, D0 & S0 are initial demand and supply curves intersecting at point A with initial price P0 and quantity Q0. When D0 shifts left to D1 and S0 shifts left to S1, they intersect at point B with higher price P1 and lower quantity Q1.

P اک So B Pi Pol А. DO Di Si So