Answer to Question #119578 in Microeconomics for brenda formin

Question

Given the products below and the events that affect them, indicate what happens to demand, supply, equilibrium quantity, and equilibrium price in a competitive market. Identify the determinant of demand and supply that causes the shifts.

(a) Home heating oil. There is a severe winter in the regions using the oil; the cost of a barrel of oil rises for producers of home heating oil.
(b) Organic foods. People become more concerned about chemical additives in food; traditional farms are switching to more organic methods.
(c) Film cameras. The price of digital cameras falls for consumers; there is a decline in the number of stores selling film cameras.
(d) Bread. Many consumers adopt a low carbohydrate diet and avoid bread products; the price of flour falls for bread producers.

Answer 1

a) Severe winter causes non-price increase of demand, so the function will move to the right. When the cost of producing heat oil rises that cause non-price decrease of supply, so the curve will move to the left. Thus, the new equilibrium can be both on the left and on the right to initial equilibrium point, and its place depends on elasticity.

b)the demand for organic food will increase(non-price determinant), so the demand curve will shift to the right, because of people's concerns. But due to farmers switch, the supply of organic food will increase(non-price determinant), so the curve will move to the right as well. So new equilibrium price and quantity will be greater than the initial one.

c)the fall in digital camera price will cause the demand of film camera to fall as well(non-price determinant), but as there are less stores, the supply of film cameras will decrease as well(non-price determinant). So new equilibrium price and quantity will be less than the initial one.

d)the demand will decrease, as people want to eat less bread(non-price determinant) but the decrease in flour price will cause the increase of the supply of bread(non-price determinant), and new equilibrium depends on elasticity so we can't say whether equilibrium point will be on the right or on the left to the initial point.