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11 June, 21:54

Consider the market for minivans. For each of the events listed here, identify which of the determinants of demand or supply are affected. Also indicate whether demand or supply increases or decreases. Then draw a diagram to show the effect on the price and quantity of minivans.

a. People decide to have more children.

b. A strike by steelworkers raises steel prices.

c. Engineers develop new automated machinery for the production of minivans.

d. The price of sport utility vehicles rises.

e. A stock market crash lowers people's wealth.

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  1. 11 June, 23:35
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    a. Demand increases; b. Supply decreases; c. Supply increases; d. Demand decreases

    Explanation:

    Demand is buyer's ability & willingness to buy good at a price, period of time. Supply is seller's ability & willingness to sell good at a price, period of time.

    Factors affecting demand : price, other goods price, income, taste & preferences. Factors affecting Supply : price, input prices, technology, government policies (tax & subsidy)

    a. Taste & preferences change in favour of the good. Demand increase & shift demand curve shift rightwards. New Equilibrium price & quantity increases.

    b. Supply decreases & shifts supply curve leftwards. New equilibrium price increases & quantity decreases.

    c. Technology improvement increases supply & shifts supply curve rightwards. New equilibrium price decreases & quantity increases.

    d. Price of substitute good rise reduces their demand. It increases the good's demand & shifts demand curve rightwards. New Equilibrium price & quantity decrease.

    e. Income fall decreases demand & shifts demand curve leftwards. New equilibrium price price & quantity both decrease.
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