1. In each of the following examples determine (1) the market in question; (2) w

Question

1.            In each of the following examples determine (1) the market in question; (2) whether a shift in demand or supply occurred the direction of the shift and what induced the shift; and (3) the effect of the shift on the equilibrium price and quantity. Draw your answer.

a.            As the price of gasoline fell in the United States in the 1990’s, more people bought large cars.

b.            As technological innovation has lowered the cost of recycling used paper, fresh paper made from recycled stock is used more frequently.

c.            As a local cable company offers cheaper pay-per-view films, local movie theaters have more unfilled seats

Explanation / Answer

Answers are given below:

a. The decrease in the price of gasoline caused a rightward shift in the demand for large cars. As a result of the shift, the equilibrium price of large cars rose and the equilibrium quantity of large cars bought and sold also rose.

b. The technological innovation has caused a rightward shift in the supply of fresh paper made from recycled stock. AS a result of this shift, the equilibrium price of fresh paper made from recycled stock has fallen and the equilibrium quantity bought and sold has risen.

c. The fall in the price of pay-per-view movies causes a leftward shift in the demand for movies at local movie theaters. As a result of this shift, the equilibrium price of people who go to the movies also falls.

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