Question

Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events. a. The market for newspapers in your town Case 1: The salaries of journalists go up. Case 2 : There is a big news event in your town, which is reported in the newspapers. b. The market for St. Louis Rams cotton T-shirts Case 1: The Rams win the Super Bowl. Case 2: The price of cotton increases. c. The market for bagels Case 1: People realize how fattening bagels are. Case 2: People have less time to make themselves a cooked breakfast. d. The market for the Krugman and Wells economics textbook Case 1: Your professor makes it required reading for all of his or her students. Case 2: Printing costs for textbooks are lowered by the use of synthetic paper.

Short answer

The increase in journalists' salaries would lead to higher production costs for newspapers, resulting in a decrease in supply and causing the supply curve to shift to the left. The demand curve would remain unchanged, as the change in journalists' salaries does not affect the preferences of consumers. At the new equilibrium, the equilibrium price will increase, and the equilibrium quantity will decrease.

Step-by-step solution

Effect on Supply Curve

The increase in journalists' salaries will lead to higher production costs for newspapers, which will decrease the supply. Hence, the supply curve will shift to the left.

Effect on Demand Curve

The demand curve remains unchanged, as the change in journalists' salaries does not affect the preferences of consumers.

Equilibrium Price and Quantity

The new equilibrium will occur where the new supply curve intersects the untouched demand curve. Equilibrium price will increase, and equilibrium quantity will decrease. Case 2 : There is a big news event in your town, which is reported in the newspapers.

Effect on Supply Curve

The supply curve will remain unchanged, as the production cost doesn't change due to the big news event.

Effect on Demand Curve

The demand curve will shift to the right, as more people would be interested in buying newspapers to read about the big news event happening in town.

Equilibrium Price and Quantity

The new equilibrium will be where the new demand curve intersects the untouched supply curve. The equilibrium price and equilibrium quantity will both increase. b. The market for St. Louis Rams cotton T-shirts Case 1: The Rams win the Super Bowl.

Effect on Supply Curve

There will be no change in the supply curve as production costs remain the same.

Effect on Demand Curve

The demand curve will shift to the right, as people would want to buy more St. Louis Rams T-shirts due to the victory.

Equilibrium Price and Quantity

The new equilibrium will be where the new demand curve intersects the untouched supply curve. The equilibrium price and equilibrium quantity will both increase. Case 2: The price of cotton increases.

Effect on Supply Curve

The increase in the price of cotton leads to higher production costs, resulting in a decrease in supply. The supply curve will shift to the left.

Effect on Demand Curve

The demand curve remains unchanged since the preferences of consumers do not change.

Equilibrium Price and Quantity

The new equilibrium occurs where the new supply curve intersects the untouched demand curve. The equilibrium price will increase, while the equilibrium quantity will decrease. c. The market for bagels Case 1: People realize how fattening bagels are.

Effect on Supply Curve

The supply curve will remain unchanged, as there is no change in production costs.

Effect on Demand Curve

The demand curve will shift to the left, as consumers become less interested in buying bagels due to their realization of the fattening nature of bagels.

Equilibrium Price and Quantity

The new equilibrium will be where the new demand curve intersects the untouched supply curve. The equilibrium price and equilibrium quantity will both decrease. Case 2: People have less time to make themselves a cooked breakfast.

Effect on Supply Curve

The supply curve remains unchanged, as there is no change in production costs.

Effect on Demand Curve

The demand curve will shift to the right, as consumers will demand more bagels due to the convenience and time-saving aspect of not having to cook breakfast.

Equilibrium Price and Quantity

The new equilibrium will be where the new demand curve intersects the untouched supply curve. The equilibrium price and equilibrium quantity will both increase. d. The market for the Krugman and Wells economics textbook Case 1: Your professor makes it required reading for all of his or her students.

Effect on Supply Curve

The supply curve remains unchanged, as there is no change in production costs.

Effect on Demand Curve

The demand curve will shift to the right, as more students are required to buy the textbook.

Equilibrium Price and Quantity

The new equilibrium will be where the new demand curve intersects the untouched supply curve. The equilibrium price and equilibrium quantity will both increase. Case 2: Printing costs for textbooks are lowered by the use of synthetic paper.

Effect on Supply Curve

The decrease in printing costs leads to an increase in supply. The supply curve will shift to the right.

Effect on Demand Curve

The demand curve remains unchanged since the preferences of consumers do not change.

Equilibrium Price and Quantity

The new equilibrium will occur where the new supply curve intersects the untouched demand curve. The equilibrium price will decrease, while the equilibrium quantity will increase.

Key concepts

Equilibrium Price

The equilibrium price is where the quantity of goods demanded by consumers equals the quantity of goods supplied by producers. This balance ensures that the market is clear, with no excess supply or demand.

When there's a shift in either the demand or supply curve, the equilibrium price will change. For example, if the demand for an item suddenly increases while supply remains the same, the equilibrium price will typically go up. This is because more people are willing to buy the product than there are available items, driving the price upwards. Conversely, if suppliers produce more of a product and demand remains unchanged, the equilibrium price may fall.

In practical scenarios, events like a big news event increasing the demand for newspapers can push the equilibrium price higher as more consumers are eager to purchase, while increases in production costs, such as higher journalist salaries, can shift it upwards by decreasing supply.

Equilibrium Quantity

Equilibrium quantity is the quantity of goods sold at the equilibrium price. It is the precise amount that meets consumer demand with available supply.

Changes in the market can affect the equilibrium quantity. For instance, if demand surges due to an event like a sports team winning a major game, the equilibrium quantity will likely increase because more people want to purchase related merchandise. Conversely, if key production materials become more expensive (like cotton for T-shirts), supply may decrease, leading to a lower equilibrium quantity.

Understanding the movements in equilibrium quantity allows businesses to adjust their production levels. They may decide to stock more items during periods of expected high demand or slow down production if input costs rise, leading to a decrease in supply.

Demand Curve

The demand curve graphically represents the quantity of a good that consumers are willing and able to purchase at various prices. Typically sloping downward from left to right, this curve signifies that as price decreases, the quantity demanded increases, and vice versa.

Several factors can shift the demand curve entirely. For example, consumer preferences, income changes, and external factors like advertising can increase demand for a product, shifting the curve to the right.

In our example, a big news event can spike interest in newspapers, shifting the demand curve to the right. Conversely, if consumers start believing a product (like bagels) is undesirable, the demand curve can shift to the left, indicating a decrease in demand. Understanding these shifts is crucial for businesses to anticipate changes in consumer behavior.

Supply Curve

The supply curve is a graphical representation of how much of a product producers are willing to supply at different prices. It usually slopes upward from left to right, indicating that producers are more willing to supply larger quantities at higher prices.

Various circumstances can lead to a shift in the supply curve. For example, technological advancements or reductions in production costs can lead to a rightward shift, indicating an increase in supply. On the other hand, if the cost of production rises—such as a hike in the price of cotton for T-shirts—the supply curve will shift left, representing a decrease in supply.

In our scenarios, the supply curve for textbooks could shift right if synthetic paper reduces printing costs. Conversely, the supply curve for newspapers could shift left if journalist salaries increase, leading to costlier production and reduced supply. Understanding the supply curve's dynamics helps businesses manage operations efficiently.