Answered: Suppose a market starts in equilibrium;…

Suppose a market starts in equilibrium; then we observe a decrease in supply and a decrease in demand simultaneously. What can we say about the new equilibrium? Illustrate.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter4: The Market Forces Of Supply And Demand

Section: Chapter Questions

Problem 7QR

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4) Suppose a market starts in equilibrium; then we observe a decrease in supply and a decrease in demand simultaneously. What can we say about the new equilibrium? Illustrate.

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Assume that we are looking at the market for California wine. Assume that the initial equilibrium price is $20 and quantities are 1,000. What would be the impact on this market of a severe drought that destroys 50% of the grapes that are used to make this wine? Supply would shift to the left, a shortage would develope, prices would decrease resulting in higher prices and lower quantity of wine. Supply would shift to the left, a surplus would develope, prices would increase resulting in higher prices and lower quantity of wine. Supply would shift to the left, a shortage would develope, prices would increase resulting in higher prices and higher quantity of wine. Supply would shift to the left, a shortage would develope, prices would increase resulting in higher prices and lower quantity of wine.
1) If supply increases and demand also decreases, we can conclude that the new equilibrium: a. Quantity must increase but market price may fall, stay the same or even increase. b. Price must fall but market quantity may fall, stay the same or even increase. c. Price must increase but market quantity may fall, stay the same or even increase. d. Quantity must decrease but market price may fall, stay the same or even increase. e. Both market quantity and market price must increase. f. Market quantity must increase and market price must decrease. 2.) One of the following equations represents a supply curve and the other a demand curve. You have to decide which is which. Circle the answer for question three that is the closest to being correct. The equations are: Q = 150 - 10P Q = 100 + 5.6P What quantity will be demanded if the market price is forced to be $9? 3.2 60.0 111.0 118.0 130.0…
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