Question

1. Drauw a supply and demand diagram. Label each axis, the demand curve, the supply curve andl ehe equilibrium price and quantity a. Show the impact of an increase in demand Label the new curve, the new equilibrium price, and the new equilibrium quantity b. Did the equilibrium price increase, decrease, or stay the same? c. Did the equilibrium quantity increase, decrease, or stay the same? 2. Draw a supply and demand diagram. Label each axis, the demand curve, the supply curve, and the equilibrium price and quantity. a. Show the impact of a decrease in demand. Label the new curve, the new equilibrium price, and the new equilibrium quantity b. Did the equilibrium price increase, decrease, or stay the same? c. Did the equilibrium quantity increase, decrease, or stay the same?

Answer 1

demand curve is downward sloping whereas supply curve is upward sloping.

P^* rightarrow PRICE (EQUILIBRIUM) Q^* rightarrow QUANTITY (EQUILIBRIUM) a) INCREASE IN DEMAND NEW EQUILIBRIUM POINT IS AT B NEW EQUILIBRIUM QUANINTY = Q^2 NEW EQUILIBRIUM PRICE = P^2 (b) NEW EQUILIBRIUM IS GREATER THAN PREVIOUS EQUILIBRIUM PRICE P^2 > P^* \r\n (C) NEW EQUILIBRIUM QUANINTY IS GREATER THAN OLD EQUILIBRIUM QUANINTY 2) rightarrow (a) DECREASE IN DEMAND OLD EQUILIBRIUM PRICE = P^* QUANTITY = Q^* NEW EQUILIBRIUM PRICE = P^2 QUANTITY = Q^2 (b) EQUILIBRIUM QUANINTY DECREASES (c) EQUILIBRIUM PRICE DECREASES.