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Chapter 4: Q20 (page 105)

Whether the product market or the labor market, what happens to the equilibrium price and quantity for each of the four possibilities: increase in demand, decrease in demand, increase in supply, and decrease in

supply.

Short Answer

Expert verified

Increase in demand increases equilibrium price & quantity. Decrease in demand decreases equilibrium price & quantity. Increase in supply decreases equilibrium price & increases equilibrium quantity. Decrease in supply increases equilibrium price & decreases equilibrium quantity.

Step by step solution

01

Basic Market Concepts 

Market is a place where buyers & sellers interact with each other to transact goods & services.

Demand is inversely related to price & curve is downward sloping, supply is directly related to price & curve is upward sloping.

Market is at equilibrium when demand & supply are equal, the curves intersect

02

Change in Demand 

Increase in demand shifts the demand curve rightwards, which creates excess demand. It creates competition among buyers and increases the equilibrium price and equilibrium quantity

Decrease in demand shifts the demand curve leftwards, which creates excess supply. It creates competition among sellers and decreases the equilibrium price & quantity.

03

Change in Supply 

Increase in supply shifts the supply curve rightwards, which creates excess supply. It creates competition among sellers and decreases the equilibrium price, and increases equilibrium quantity.

Decrease in supply shifts the supply curve leftwards, which creates excess demand. It creates competition among buyers and increases the equilibrium price & decreases equilibrium quantity.

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Most popular questions from this chapter

If a usury law limits interest rates to no more than 35%, what would the likely impact be on the amount of loans made and interest rates paid?

Imagine that to preserve the traditional way of life in small fishing villages, a government decides to impose a price floor that will guarantee all fishermen a certain price for their catch.

a. Using the demand and supply framework, predict the effects on the price, quantity demanded, and quantity supplied.

b. With the enactment of this price floor for fish, what are some of the likely unintended consequences in the market?

c. Suggest some policies other than the price floor to make it possible for small fishing villages to continue.

Predict how each of the following economic changes will affect the equilibrium price and quantity in the financial market for home loans. Sketch a demand and supply diagram to support your answers.

a. The number of people at the most common ages for home-buying increases.

b. People gain confidence that the economy is growing and that their jobs are secure.

c. Banks that have made home loans find that a larger number of people than they expected are not repaying those loans.

d. Because of a threat of a war, people become uncertain about their economic future.

e. The overall level of saving in the economy diminishes.

f. The federal government changes its bank regulations in a way that makes it cheaper and easier for banks to make home loans.

Under what circumstances would a minimum wage be a nonbinding price floor? Under what circumstances would a living wage be a binding price floor?

Name some factors that can cause a shift in the

supply curve in labor markets.
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