Answer to Question #308155 in Microeconomics for Usman ali

Question

Q-3. Consider the market for minivans. For each of the events listed here, identify which of the determinants of demand or supply are affected. Also indicate whether demand or supply increases or decreases. Then draw a diagram to show the effect on the price and quantity of minivans.

a. People decide to have more children.

b. A strike by steelworkers raises steel prices.

c. Engineers develop new automated machinery

for the production of minivans.

d. The price of sports utility vehicles rises.

e. A stock market crash lowers people’s wealth.

Answer 1

Answers

(a) People deciding to have more children will lead to an increase in demand. This will shift the demand curve to the right. The price (P) and quantity (Q) will both increase.

(b) A strike by steelworkers raising the price will lead to a decrease in supply as producers will be less willing to supply at the equilibrium price. This will shift the supply curve to the left and lead to an increase in price (P) and a decrease in quantity (Q).

(c) Improvement in production technology will lead to an increase in supply shifting the supply curve to the right. This leads to a decrease in price (P) and an increase in quantity (Q).

(d) Sport utility vehicles are a substitute to minivans and an increase in their price will cause an increase in demand for minivans. This will cause the demand curve to shift to the right and lead to an increase in both price (P) and quantity (Q).

(e) A crash of the stock market will lead to a decrease in demand and shift the demand curve to the left. This will cause both price (P) and quantity (Q) to decrease