7. Suppose you are the Manager of Billy Bob’s Boats, a factory in the Pee Dee wh

Question

7. Suppose you are the Manager of Billy Bob’s Boats, a factory in the Pee Dee which produces small aluminum fishin’ boats. With demand and supply analysis, explain how you expect each of the following to affect the equilibrium price and quantity of your boats.

a. The price of aluminum decreases.

b. The price of Bass Pro Shop motors for fishin’ boats increases.

c. The prices of competitors’ fishin’ boats increase.

d. Because of a recession and job losses, the income of Pee Dee residents decreases.

e. Because your workers unionize, the wages you must pay them increase.

Explanation / Answer

Answer.)

a.) Since aluminium is the main input in making small aluminium boats, decrease in aluminium price will decrease overall price of production shifting supply curve rightward which leads to increase in equlibrium quantity and decrease in equilibrium price. No effect on demand curve.

b.) Since Bass pro shop motors is an important input in making small aluminium boats, Increase in price of Brass pro shop motors will increase overall price of production shifting supply curve leftward which leads to decrease in equilibrium quantity and Increase in equilibrium price. No effect on demand curve.

c.) Increase in price of competitors boats will attract more new Consumers to buy relatively cheaper small aluminium boats Billy Bob . This would result in Increase in demand shifting demand curve rightward with Increase in equilibrium price and Increase quantity. No effect on supply curve.

d.) Decrease income of Pee Dee residents would end up in decreasing demand of Billy Bob's small aluminium boats shifting demand curve leftward. This would result in decreases in equilibrium price and decrease in equilibrium quantity. No effect on supply curve.

e.) Increase in wage increases overall cost of production of small boats leading to leftward shift in supply curve. Thus Results in decrease in equilibrium quantity and Increase in equilibrium price. No effect on demand curve.

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