Supply Curve Shifts Assignment Report

Answer to Question: 1
When there is unusually low supply, supply goes down and supply curve shifts
leftward from S to S1 by keeping same demand D leading to supply shock which
pushes up equilibrium price from P* to Pa and lowers quantity from Q* to Qa, as
shown in Figure:1 (Edwards 2017). The opposite thing happens with an unusually
large lobster harvest. Supply increases and shifts rightward as shown in Figure: 2.
This leads to a fall in equilibrium price from P*($4 per pound) to Pa($3.89 per
pound) and raises the quantity from Q* to Qa due to excess of supply, leading to a
supply shock. Thus, sellers of Lobster has to sell more lobsters at low prices.
Moreover, global financial crisis affected the export market of marine lobsters as
Icelandic banks failed to maintain the seafood industry.
Figure:1 Figure:2

A weak economy is a situation where
economic growth is decreasing or slow due
to factors like the rise in unemployment rate,
fall in per capita income and consumption
(Mankiw 2016). This leads to demand
shock, which lowers the aggregate demand
(AD) for good. Lobster being an elastic good
is widely affected by the supply shock as
lobster consumption went down. Lobster is
considered as a celebratory item and in weak
economic condition people dined less which
affected the lobster market. A fall in AD
lowers output demanded from Y1 to Y2
level with a fall in price from P1 to P2, as
shown in Figure:3.
A strong economy means a good
economic performance which leads to
a positive demand shock where the
aggregate demand goes up, causing a
rise in price and output of lobster.
However, weak Us economy has hit
prices to the lowest level.
Figure:3
Answer to Question: 2