Question

Graphing Assignment & Rubric (1) 2 Semch Miranda Whitney References Insert Design Layout Mailings Review View Developer Help - A A"| Aav | A E Calibri (Body) v 12 |E|1|1 AaBbccD AaBbCcD AaBbC AaBbCct AaBbCer AaB 1 Normal 1 No Spac. Heading 1 BIU- x, x|A- 2- A - nter Heading 3 Heading 2 Title Font Paragraph Styles 3. The graph below illustrates the market for computers, which are normal goods. If the income of computer buyers falls at the same time a tariff is placed on imported parts used to make computers, how will equilibrlum price and output in the market for computers be affected? Show the effect of these changes on the graph. (10 points) Price (thousands of dollars per PC) 40 10 Quantity (millions of PCs per year) Instructions DFoaus ato ceardh

Answer 1

Due to decrease in income demand decreases and shifts to the left. With increase in tariff on some imported part, supply also decreases and shifts to the left. It makes equilibrium quantity to decrease fro sure. But, change in price depends upon the size of the change in decrease in demand and supply.

When size of decrease in demand is bigger than the size of change in supply, then price also decreases at the new equilibrium. It is shown in the following diagram.

Price (thousands of dollars per PC) 1 ntity (millions of PCs per year)

Here, P' is lower than the $3 after the change in demand and supply.

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When size of change in supply is bigger than that of demand, then price increases at the new equilibrium. It is shown in the following diagram.

Price (thousands of dollars per PC) Quantity (millions of PCs per year)

Here, P' is bigger than $3. It shows that price has increased at the new equilibrium.