Question

Assignment 5-Q1 (12 points) Explain how the following events in a particular market shift the demand or supply curve, and thereby affect equilibrium price and quantity of the commodity: 1. Consumers' income decreases and the good is inferior 2. The price of a substitute good (in consumption) decreases 3. The price of a substitute good in production decreases. 4. The price of a complementary good (in consumption) decreases. 5. The price of inputs used to produce the good increases. 6. The legal restriction of inbound immigration is largely mitigated in Japan's labor market.

Please provide your calculations and explanations. ( No handwriting pls because it is difficult to read..)

Thank you in advance.

Answer 1

1) If the product is inferior, if consumer income decreases, people consume more of it. The price of inferior good rises from P to P1 and output rises from Y to Y1.

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2) The price of substitute good decreases, it would reduce the consumption of this good. As consumers wants to maximize their utility level and wants to buy good which is cheaper. Price would fall to P 1 from P and output would fall to Y1 from Y

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3) If the price of substitute good falls, producer will tend to produce this good which price is still high which will raise the supply of this good such that producer can ripe maximum profit with the high price. This raises the output of this good from Y to Y1 and lowers the prices from P to P1.
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4) When the price of complementary good decreases, producer will tend to increase the production of this good too as consumer are likely to consume more good when price falls. Output rises and price falls.
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5) As the price of input increase, produce will face higher cost to produce same good which reduces the supply of good produced. This reduced the output from Y to Y1 and price rises.
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6) As the restriction on inbound immigration have reduced, more labor can enter into the Japan economy which will raise the supply of good which will raise the output from Y to Y1 and reduce prices from P to P1.
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