Answer to Question #225690 in Economics of Enterprise for Sharma

Question

For each of the following statements, draw a diagram that illustrates the likely effect on the market for Toyota cars. Indicate in each case the impact on equilibrium price and equilibrium quantity with full explanation.

a. A Mechanic Engineer warns that new Toyota cars overheats during long journeys. ( 2 marks)

b. The price of rubber which is used to produce tyres reduces. (2 marks)

c. A fall in the price of Nissan cars.(2 marks)

d. A rise in bus tariffs . (2 marks)

e. A successful advertising of Toyota cars.( 2 marks)

Answer 1

a)

In this case, the price will decrease from P0 to P1. Due to the overheating effect, it is automatic that the quantity will have to be reduced due to reduction in quantity demanded. Makes the Equilibrium to shift from E0 to E1.

b) when the price decreases, the demand will increase. In this case, the Equilibrium price will rise, as the Equilibrium quantity falls.

e) A successful advertising indicates that the demand will increase as the supply goes down. The price may also shoot as Quantity decreases.