Question

With the aid of diagrams, explain the effects of the following shocks on the competitive market in the short-run and long-run. Assume the industry has a constant cost.
a. What happens in the market for tennis shoes when the price of snickers increases.
b. What happens in the market for ramen when income falls assuming ramen is an inferior good.

Answer 1

2.ru -- - ao New Bunaw ! Demam Q. As demand for tennis shoes cureases (due to rise in price of price of suerrero), sweat more firus euter the industry for tamps Blocs, leading to t in SAC. Thus, the following effects ocor? Densour increases shift of demand) Beeing this increases, new firmo enter the industry . - SR firm equilibrium skifts from Ao a Bo connesponding to change in manket eam from A b B. Net effeer: Both quaulity and price of in the zlout nu In the hoRo, oque ip back at a nove firme e For Ramen produition decreases Aspreming Ramen is an inferior good, with fall in inome, demand for Ramen inenreases. Supply SAG - To BL - - - New benan Demain go au q 0 Qo (Notia, how demand for inferior good of slepu) Initially, the firm eam is at a Co cornerponding to industry 24 с. As production increases about due to increase in demand, mone new finns enter the industry driving the price sconto Pie or Almin - In the tore, as people nerover from the inome slock, the industry is back at its L.R. eam.