Economics question! Help! Part 2!?

Question

Determine the effect upon equilibrium price and quantity sold if the following changes occur in a particular market.

A. Consumers' income increases and the good is normal

B. The price of a substitute good (in consumption) increases.

C. The price of a substitute good (in production) increases.

D. The price of a complement good (in consumption) increases.

E. The price of inputs used to produce the good increases

F. Consumers expect that the price of the good will increase in the near future

G. it is widely publicized that consumption of the good is hazardous to health.

H. Cost reducing technological change takes place in the industry.

Answer 1

A. Demand curve shifts right (increases) - equilibrium price and quantity sold increases

B. Demand curve shifts right - equilibrium price and quantity sold increases

C. I'm not sure about this one.

D. Demand curve shifts left (decreases) - equilibrium price and quantity decreases

E. Supply curve shifts left (decreases) - equilibrium price increases and quantity decreases

F. Demand curve shifts right - equilibrium price and quantity increases

G. Demand curve shifts left - equilibrium price and quantity decrease

H. Supply curve shifts right (increases) - equilibrium price decreases and quantity increases

Answer 2

To answer this type of question, you need to determine whether the change will affect Supply or Demand, which direction the effect will be in, and then DRAW THE GRAPH.  Drawing the graph is very important...make sure you draw a graph with both supply and demand so that you can see where the original equilibrium point is, and THEN draw the shift in one of the curves to see how the equilibrium changes.

So for (A), if consumers' income increases and the good is normal, this would cause the Demand for the good to increase which is shown on the graph as a shift to the right.  (Make sure that for both Supply and Demand you show an increase as a shift to the right and a decrease as a shift to the left - not up or down).

When you draw the graph, you should discover that equilibrium price and quantity both increase in this case.

B. Demand increases, Equilibrium price and quantity both increase.

C. Supply decreases. Equilibrium price increases and equilibrium quantity decreases.

D. Demand decreases.  Equilibrium price and quantity both decrease.

E. Supply decreases.  Equilibrium price increases and equilibrium quantity decreases.

F. Demand increases.  Equilibrium price and quantity both increase.

G. Demand decreases.  Equilibrium price and quantity both decrease.

H.  Supply increases.  Equilibrium price decreases and equilibrium quantity increases.