The main purpose of studying a market is to be able to predict qualitatively and

Question

The main purpose of studying a market is to be able to predict qualitatively and quantitatively changes in prices resulting from changes in demand and supply conditions.

For each of the following events, assume that either the supply curve or the demand curve (not both) shifted. Explain which curve shifted, if any, and indicate the qualitative direction of the shift, the new market equilibrium, and the new equilibrium price and quantity.

Using some of the concepts you learned from the module, discuss the questions below:

From 1950 to 1979 the wages paid to fruit pickers increased while the number of fruit pickers employed decreased.

During the same period the price of radio sets declined, while the number of radio sets purchased increased.

Housing prices are rising but more houses are sold.

Australian Airlines reduces its average plane fare by 30 percent in order to attract more customers.

Explanation / Answer

1) From 1950 to 1979 the wages paid to fruit pickers increased while the number of fruit pickers employed decreased :

This situation shows that the number of the fruit pickers has decreased while the wages of the fruitpickers has increased. Thus, the demand has not changed. The supply of the fruit pickers has decreased, hence, the fruit pickers supply has shifted to the left. With supply shifted to left, less supply will be there, reducing the equilibrium quantity but increasing the equilibrium price.

2) During the same period the price of radio sets declined, while the number of radio sets purchased increased.

With the reduction of prices, demand would have been increased. Hence demand curve shifted towards right incresing equlibrium quantity and price.

3) Housing prices are rising but more houses are sold.:

In this case the housing prices are rising but more houses were sold. The demand of the houses has increased. The demand curve has moved to the right.

4) Australian Airlines reduces its average plane fare by 30 percent in order to attract more customers.:

In this the Australian Airlines reduces its average plane fare by 30 percent in order toattract more customers. The aim here is increase the revenue in the future. The supply isbeen increased to accommodate the increasing customers. The supply curve is moved tothe right.

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