Answer to Question #184105 in Microeconomics for Hamna

Question

In 2005 earthquake has devastating effect on the economy. Alot of factories gets destroyed many people lost their life.Explain WITH the help of demand and supply curves how an earthquake affects the market equilibrium and what is the new equilibrium price and quantity

Answer 1

Solution:

An earthquake will adversely affect the market economy. Many people will lose their jobs, less supply will be encountered in the market, demand for commodities will increase, including the prices of products due to less quantities being supplied. The market equilibrium will, therefore, increase. If demand increases and supply decreases, the equilibrium quantity could increase, decrease or remain the same, while the equilibrium price will increase.

 

This is depicted by the following graph: