Answer to Question #257203 in Microeconomics for anu

Question

The following statements (entirely fictitious) describe events which occurred on markets for specific goods. You are asked to predict the impact of these events on the equilibrium price and quantity and analyze the changes in these markets step by step. Your explanation must be based on and supported by appropriate supply and demand graphs paying particular attention to labels (identifiers), to the direction of the shift in any curve and to the changes in the equilibrium prices and quantities if any.

a) The Canadian (Ottawa?) beaver tail market. An American campaign strongly urges beaver tail consumers around the world to boycott our world famous beaver tails. [10 points]

b) The computer chip market. The demand for personal computers increases as consumer incomes increase and preferences shift (everyone wants to surf the WWW). At the same time, computer chip production costs decrease significantly due to the invention of new materials. [10 points]

Answer 1

a.

This will lead to a movement along the demand curve as the supply decreases with increase in price. The equilibrium price will rise as equilibrium quantity falls.

b.

The demand curve will shift to the right as equilibrium quantity will increase