Using your understanding of the non price determinants of supply and of demand, analyze each of the following market cases. Draw a graph showing what happens in each situation, indicate what happens to equilibrium price and quantity, and explain why, following this example: Market for gasoline: A hurricane hits the Gulf of Mexico, destroying many refineries that produce gasoline from crude oil.
a. Market for bananas: New health reports indicate that people can gain important health benefits from eating bananas.
b. Market for shoes: A new technology for shoe making means that shoes can be made at a lower cost per pair.
c. Market for Internet design services: Several thousand new graduates of design schools enter the market, ready to supply their services.
d. Market for expensive meals: A booming economy raises the incomes of many households.
e. Market for grapes from California: A freeze in Chile, usually a major world provider of fresh fruit, raises the price of Chilean grapes.
f. Market for salsa dance lessons: The only nightclub featuring salsa music triples its entrance fee.
g. Market for bottled water: A rumor circulates that the price of bottled water is about to triple. (Think only about the demand side.)
h. Market for Internet design services: Several thousand new graduates of design schools enter the market, ready to supply their services, at the same time that many firms want to create new Web sites.
i. Market for bananas: New health reports indicate that people can gain important health benefits from eating bananas, while at the same time an infestation of insects reduces the banana harvest in several areas.
Answers
DEMAND -
Demand is the quantity of certain goods which are desired by the consumers from the market.
SUPPLY :-
Supply is the quantity of certain goods or services which are provided by the desired suppliers to the market.
THE LAW OF DEMAND -
This is a inverse relationship between the prices of goods and it's demand . If the price of the goods rise then their demand will fall . In other words , The higher the price , The lower the quantity demanded . Demand curve is downward line from left to right .
THE LAW OF SUPPLY -
This is a direct relationship between the prices of goods and it's supply . If the price of the goods rise then their supply will also rise . In other words , The higher the price , The higher the quantity supplied. Supply curve is upward line from left to right.
EQUILIBRIUM -
When the supply and demand of the market are equal then it is said to be "Equilibrium" . when the demand of the goods is equal to the supply of goods it is known as Equilibrium.
Explanation for given questions -
The higher the price of gas , The lower the quantity of gas demanded .
A) The lower the price of bananas , The higher the quantity of bananas demanded .
B) The lower the price of shoes , The higher the quantity of shoes demanded.
C) The higher the quantity of designing services , The lower the price of services.
D) The higher the price of meals , The lower the quantity of meals demanded.
E) The higher the price of grapes , The lower the quantity of grapes demanded .
F) The higher the price of salsa dance classes then students will reduced.
G) The higher the rate of water bottle, The lower the quantity demanded .
H) The higher the quantity of suppliers, The lower the price of designing services.
I) The higher the price of bananas , The lower the quantity of bananas demanded.
