Economics problem?

Question

how to do these questions? I'm confused.

1. on seperate demand and supply for bread, sketch and explain the effects of the following:

a rise in the price of wheat.

a rise in the price of butter and margarine

a rise in the price of rice, pasta and potatoes.

2. By using diagram of demand and supply, explain the impact of the following to the market for labour

an increase in wages and saleries

a widespread reduction in rental

a more lenient regulation for practising law

an increase in oil prices.

Maybe I don't understand the concept. any references or solutions? thanks in advance.

Answer 1

1.  start with a S and D graph for bread

now first take an event

thinking about whether the event shifts the S or the D

shift the one that is affected do not shift the other

find where the new S and D crosses that is the new equilbrium.

look to see how price and quantity changed

2. same thing

(rise in the price wheat)

Answer 2

1:

a rise in the price of wheat (primary resource of bread included in cost) - will shift supply for bread left thus reducing equilibrium quantity and increasing price

a rise in the price of butter and margarine - rise in price of complementary goods will reduce demand for bread by shifting demand left thus reducing equilibrium quantity and price.

a rise in the price of rice, pasta and potatoes. - rise in prices of substitutes goods will increase demand for bread thus shifting demand curve right and causing equilibrium price and quantity to rise.

2:

an increase in wages and salaries - could be effect of higher demand for labor or reduction of labor-supply.

a widespread reduction in rental - will mean higher business activity level thus causing higher demand for labor (right-shift) which consequently will lead to increase in wages and quantity of labor demanded.

a more lenient regulation for practicing law - will mean higher business activity level thus causing higher demand for labor (right-shift) which consequently will lead to increase in wages and quantity of labor demanded.

an increase in oil prices. - will cause production costs to increase which consequently will lead to fall in supply of products (goods and services) and reduction of output. Less output means less labor are required for production - so demand for labor will fall (left-ward shift of labor-demand curve) - leading to less equilibrium labor and wages.