State the effect of the following events on equilibrium price and quantity of th

Question

State the effect of the following events on equilibrium price and quantity of the market given.

a.   Beetle infestation decimates tobacco crop. Market: cigars.

b.   The Organization for Petroleum Export Countries raises oil export quotas. Market: gasoline.

c.   Digital image albums become the rage among households while improved technology reduces the cost of producing digital cameras. Market: digital cameras.

d.   Hurricanes in the Gulf coast cause gasoline supply disruptions while the summer travel season ends. Market: gasoline.

Explanation / Answer

a. Due to the infestation, the tobacco crop is damages, therefore the equilibrium suppy of cigars reduces. With demand remaining the same, equilibrium price increases. Equilibrium quantity decreases

b. With increase in the quanity of exports, oil supply increases . Therefore, equilibrium price falls, and equilibrium quantity increases.

c. Due to these changes, there is an increase in both demand and supply so equilibrium quantity increases while the effect on price is ambiguos.

d. Due to these changes, both demand and supply will decrease. Therefore, equilibrium quantity decreases for certain while the effect on price is ambiguos.

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