Problem:
Supply and demand curves can be employed to demonstrate the effects of charging market conditions and situations. The diagram below depicts hypothetical supply and demand curves for oak flooring. Use the diagram to answer the questions which follow.
Question 1: What is equilibrium price as the diagram is drawn? And also describe what the equilibrium quantity is?
Question 2: Assume a boom in home construction happens, increasing the demand for oak flooring. Will this shift the demand curve, or cause movement along the demand curve D1? If it shifts the demand curve, sketch the new curve parallel to the old one and passing by the points D2 or D3, whichever you think enhanced represents the effect of construction boom. What is the new equilibrium price? What is the new equilibrium quantity?
Question 3: Next assume the improvements in sawmill technology cut the cost of producing oak flooring. Will this shift the supply curve or cause movement along it? If it shifts supply curve, sketch the new curve parallel to old one, and passing by either S2 or S3, whichever you thing is suitable. Supposing that the demand curve remains where you left it at the end of part b, what is new equilibrium price? What is the new equilibrium quantity?