Answer to Question #314982 in Macroeconomics for olivia

Question

Using shifts in supply and demand curves, describe a change in the industry in which your firm operates.

The change may arise from a change in costs, entry/exit of firms, a change in consumer tastes, a change in the Macroeconomy, a change in interest rates, or a change in exchange rates.

Label the axes, and state the geographic, product, and time dimensions of the demand and supply curves you are drawing.

Explain what happened to industry price and quantity by making specific references to the demand and supply curves.

If more than one change occurred, then decompose the change into smaller pieces so that your explanation has a step-by-step character to it.

(Hint and warning: Demand and supply curves are used at the industry level, not at the firm level.) Describe how your company could profitably use the analysis.  

Answer 1

A shift in demand curves occur due to a change in the tastes of consumers, income, market size, expectation of future prices, related good prices, and availability of substitute products. An increase in demand causes the demand curve to shift to the right. The equilibrium price and equilibrium quantity increase as a result. A decrease in demand causes the curve to shift to the left. The equilibrium price and equilibrium quantity decrease as a result. Below is an example of demand increasing.

A shift in supply curves occur due to a change in producers' availability, input costs, government action, labor productivity, expectation of future prices, and technology. An increase in the supply causes the supply curve to shift right. The equilibrium price decreases and the quantity equilibrium increase. A decrease in supply causes the supply curve to shift left. The equilibrium price increases, and the equilibrium quantity decreases. Below is an example of supply decreasing, and its effects on the market equilibrium.

When there are simultaneous changes in the supply and the demand curve, the changes in equilibrium price and quantity depends on which curves have been affected, the magnitude of the changes, and the relative in changes in demand and supply. Knowing the comparison between which change in demand and supply is bigger would help determine the changes in equilibrium price and quantity. Below refers to the effects of simultaneous changes.

Firms could strategically plan their market activities by analyzing market changes in demand and supply. This ensures that firms know what to do with pricing and production costs. For example, an increase in demand would encourage supliers to increase the quantity of supply produced to meet the new demand and ensure new profits.