Question

Refer to the company that you proposed in the previous question.

For each scenario below, use a supply and demand analysis to make a prediction regarding both the equilibrium price and quantity for your good or service. That is, for each part, tell me whether you expect the equilibrium price of your product to rise or fall AND whether you expect equilibrium quantity to rise or fall.

Also include in your explanation which curve is shifting and which shifter variable is affected.

a) Your customers’ incomes increase. Be sure to note whether the good or service you are providing is a normal good or an inferior good.

b. The minimum wage is raised in your area, and you must pay your employees more. (Assume you have employees for this scenario, even if that was not part of your initial plan.)

c. A firm that offers the same good or service moves into town.

d. Your customers expect the price of your good or service to fall in the future.

e. The price of a good or service that can be substituted for yours falls (the substitute becomes cheaper).

f. The scenarios in both a) and b) occur at the same time.

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Answer 1