Question

2. For each of listed events, identify the figure above [i.e. Figures 1-16) that best represents the stated outcome. In each case, identify the ultimate impact on market equilibrium u quantity and price generally expected given the course of events (indicate by stating either "increase" decrease", "no change", or "indeterminate"). Example: Farmed salmon market "Changes in government regulations reduced the number of firms provided formed salmon. At the same time i.e. simultaneous to the regulatory change), the consuming public's opinion of farmed salmon declined." Figure: 8 lil Quantity ultimately decreases [Qºto Q'] [ii] Price is ultimately indeterminate (P = 2: the magnitude of the curve shifts determine whether price increases, decreases, or remains the same - while the diagram illustrates "equal" curve shifts, the context of the question provides insufficient information to determine the actual shift magnitudes). [a] Denim jean market in Europe: "Labor costs associated with the production of denim jeans fall. At o later date fi.e. not simultaneous), European consumer preferences for denim jeans decline." Figure: ti) [b] Market for used cars in Canada: "Automobile insurance rates fall across Canada. At a later date, new online technologies lower the cost of selling a used car." Figure: [ii] [C] Beef market: "Consumer concerns about the health effects from eating chicken cause an immediate shift in preferences toward beef. Greater subsequent demand for feed used to raise beef cattle at a later date causes higher feed prices for beef cattle producers." Figure: [d] Bubble gum market: "Sagging bubble gum demand and low bubble gum prices initially cause bubble gum existing producers to trim back their production. Eventually, many bubble gum producers leave the industry."

Answer 1

a).

Consider the market for Denim Jeans, as the labor cost associated with the production of denim jeans fall, => the supply of jeans increases, => the supply curve will shifts to the right side given the demand, => the equilibrium quantity increases and the price decreases.

Figure 3 P. S° P° D°

In the later date consumers preferences for jeans decline, => the demand shift to the left given the supply curve, => the equilibrium quantity decreases and price also decrease.

Figure 13 So Pl C. Q": Q==? Q B. P.

So, ultimately the equilibrium quantity is indeterminate and the price decreases.

B).

Consider the market for used cars, as the automobile insurance rates fall, => the demand of cars decreases, => the demand curve will shifts to the left side given the demand, => the equilibrium quantity and price both decreases.

Figure 2 P. P! DI

In the later date new technology lower the cost of selling a used car, => the supply of cars increases, => supply will shift to the right given the new demand curve, => the equilibrium quantity increases and price further decreases.

Figure 14

So, ultimately the equilibrium quantity is indeterminate and the price decreases.

c).

Consider the market for beef, the immediate shift in preference toward beef, => the demand for beef increases, => the demand curve will shifts to the right side given the supply, => the equilibrium quantity and price both increases.

Figure 1 P. S° P! D'

In the later date higher feed prices increases the cost of raising cattle, => the supply of beef decreases, => supply will shift to the left given the new demand curve, => the equilibrium quantity decreases and price further increases.

Figure 157 P2 Q": Q=? Q P.

So, ultimately the equilibrium quantity is indeterminate and the price decreases.

d).

Consider the bubble gum market, the sagging bubble gum demand causes the demand for bubble gum to decreases, => the demand curve will shifts to the left side given the supply, => the equilibrium quantity and price both decreases. Eventually many bubble gum producers leave the industry, => the supply of bubble gum decreases, => supply will shift to the left given the new demand curve, => the equilibrium quantity decreases and price increases.

Figure 10 S' So P, P=? PI 0.

So, ultimately the equilibrium quantity decreases and the price is indeterminate.