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. People decide to have more children.A strike by steelworkers raises the prices.Engineers find a new automated machinery.The price of midsize cars increases.A stock market crash lowers people’s wealth.

Question
Asked Oct 10, 2019
  • 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.

 

  1. People decide to have more children.
  2. A strike by steelworkers raises the prices.
  3. Engineers find a new automated machinery.
  4. The price of midsize cars increases.
  5. A stock market crash lowers people’s wealth.

 

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Expert Answer

Step 1

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The market for minivans has the initial demand at D and supply at S with equilibrium point at e, price P and quantity Q. Now, the following events affect the demand and supply and can be seen below.

Step 2
  1. People decide to have more children: This would increase the number of buyers of minivan and shifts the demand curve rightwards to D1, there will be no change in the supply curve. New equilibrium is at e1 with higher price P1 and quantity Q1.
Price
P1
D1
Q1
Quantity
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Price P1 D1 Q1 Quantity

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Step 3
  1. A strike by steelworkers raises the prices: As steel is an input used in production of minivans, the cost of production increases which would...
S2
Price
S
e2
P2
Q2
Quantity
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S2 Price S e2 P2 Q2 Quantity

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Supply and Demand

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