ap macroeconomics

Question

For each scenario below, draw an accurately labeled market graph of all axes, curves, and equilibria points. Be sure to use arrows to indicate the direction of shifts in supply and/or demand.

a) The market for automobile tires after the price of rubber increases.

b) The market for a hardcover book in which the publisher overestimated demand, charging more than the equilibrium price. (Instead of a shift, indicate the quantity of the shortage or surplus of the book.)

c) The market for a normal consumer good after a significant rise in average income.

d) The market for infant cribs after a significant decline in the birth rate.

For the following three parts, answer each question completely, directly, and succinctly.

e) If the demand for a good decreases, ceteris paribus, what will happen to the equilibrium price?

f) What would happen to the equilibrium price and equilibrium quantity of a good after the government subsidized its production at the same time that demand increased? Explain.

g) Imagine the supplier of a small handcrafted good does not know that a major social media influencer has praised its product's high quality. What would be the first disequilibrium state of this supplier's good? Explain.

Answer 1

I think there is no answer here because there is no way to draw on this but I will try to explain this the best I can:

A: The increase in the price of rubber shifts the supply of rubber to the left increasing the equilibrium price and decreasing the equilibrium quantity.

B: It's a surplus though I can not say how large a surplus because there is no other data.

C: The demand curve shifts to the right raising both the equilibrium price and quantity.

D: The demand curve shifts to the left lowering both the equilibrium price and quantity.

E: The equilibrium price will go down because suppliers will lower the price in order to generate demand.

F: If the government subsidized production, the price would decrease and the quantity would increase. When demand increases, both the price and quantity increase. So quantity will increase but price will be ambiguous. You cannot know what will happen to price without knowing whether demand increasing or the government subsidy had the greater effect.

G: The social media influencer will increase the demand for the good, creating a shortage as many people will want the goods at their current price and the supplier will not be able to keep up. This is the state of disequilibrium. Afterwards, the supplier should raise their price, and the shortage will go away as fewer people demand the good.