Demand and Supply Equilibrium: Assignment
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Added on 2020-04-01
Demand and Supply Equilibrium: Assignment
Added on 2020-04-01
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Question 1A change in quantity demanded of hats and change in demand of hats can be differentiated on the basis of CAUSE and GRAPHICAL analysis.The cause of a change in quantity demanded of hats is a change in price of hats. If price falls fromP1 to P2 (shown as A to B) then quantity demanded rises from Q1 to Q2. This is shown as movement ALONG the curve from point A to B. An increase in demand of hats is caused by a change in other determinants of demand for hats. These may include- change in income or price of a substitute or complementary good, or a general change in preferences. It is shown as a SHIFT of the curve from D1 to D2. This right shift is an indication that demand for hats has risen. The opposite is a fall in demand, shown by the downwardshift of the demand curve to D3 A2In each case given we use demand supply analysis. Each event is shown with shifts in demand and/orsupply curves to determine the effect on price and quantity. (a)The event is - change in price of panels which disturbs the initial equilibrium at A with price P*. As mentioned in question1, the lower price is shown as a movement along the curve from A to B. At the price of P1, there is excess supply, and this point B is a disequilibrium point. (b)We assume that electricity and solar energy are close substitutes. Any change in price of electricity will affect demand curve in terms of shifting it. It is expected that more expensive electricity will cause higher demand for solar energy. This will drive the demand for solar
panels, as solar energy can’t be made without panels. We show this with an upward shift of demand curve from D1 to D2. At the new equilibrium of E2,price and quantity of solar panelsis higher than at E( initial equilibrium). (c)Higher productivity is a supply side determinant. It allows more panels to be produced at presumably lower costs, so that cost of a solar panel falls. This is seen as downward shift of supply curve from S1 to S2. At the new equilibrium of E3 price is lower while quantity is higher as compared to initial equilibrium of E. A3The reason for different prices in the two seasons is the interaction of demand and supply forces. In winters demand (Dw)is lower as compared to summers(Ds)- Dw lies below Ds for this reason. In summers supply is higher than in winter –Sw lies above Ss to show lower supplies in winters.The price in summers is Ps, shown by the equality of Ds and Ss . the price is winters is Pw, determined by equality of Sw and Dw. Ps < Pw even though demand is higher in summers. But higher supply in summers causes price to dip below winter levels.
A4The will use the demand and supply of yoga services to ascertain the effects of two events mentioned here. The 1st event is the rise in demand for yoga among consumers. This is non mathematical determinant of demand, leading to an increase in demand. This is depicted as an upward shift of demand curve from D1 to D2 in red. Considered alone this shift will cause an increase in price and quantity both.The 2nd event is beginning of government regulations, which place stringent controls on approved yoga providers. As it is tougher to be certified now the total supply of providers will decline, such that supply curve shifts upwards (S1 to S2 in red). On its own this leads to lower quantity and higher price for yoga services. Now we combine the effects on price and quantity. It is clear that price increases under both events, but quantity takes different routes. It falls due to lower supply, but rises due to higher demand. The net effect on quantity will depend on relative strength of higher demand and lower supply. If higher demand outstrips lower supply then quantity of will riseIf the decrease in supply outstrips the increase in demand then quantity will fall( as shown).When both the increase in demand and decrease in supply are equal , quantity remains unchanged. Price will rise in all cases.
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