Problem 1
For each supply and demand scenarios below, answering the following questions:
How will each affect equilibrium price and equilibrium quantity in a competitive market?
Will price and quantity rise, fall, or be unchanged?
Based on the magnitudes of the shifts, will the answers be indeterminate?
Provide an appropriate graph to illustrate each answer (this does not require use of Excel, although you may use it). NOTE: this problem is separate from problem 1.
Demand decreases and supply is constant (unchanged).
Demand increases and supply increases.
Supply decreases and demand is constant (unchanged).
Supply increases and demand decreases.
Demand increases and supply decreases.
Demand decreases and supply decreases.
Demand increases and supply is constant (unchanged).
Note that ‘constant’ means ‘no shift’ while ‘increases’ or ‘decreases’ means a shift occurs.
NOTE: "Indeterminate" just means 'uncertain' - that is, 'it depends on how much the S and D curves shift'. For example, if S shifts up/left and D shifts down/left then the equilibrium quantity will definitely decrease but the equilibrium price might be high, lower, or the same as before. It all depends on which curve shifts more.