1. For each of the determinants of demands in equation 2.1, identify an example
ID: 1242668 • Letter: 1
Question
1. For each of the determinants of demands in equation 2.1, identify an example illustrating the effect on the demand for hybrid gasoline-electric vehicles such as the Toyota Prius. Then do the same for each of the determinant of supply in equation 2.2 In each instance, would equilibrium market price increase of decrease? Consider substitutes such as plug-in hybrids, the Nissan Leaf and Chevy Volt, and complements such as gasoline and lithium ion laptop computer batteries. 2.1 Qd=f (P, Ps, Pc, Y, A, Ac, N, Cp, Pe, Ta, T/S...) 2.2 Qs=f (P,Pi, Pui, T, EE, F, RC, Pe, T/S...)Explanation / Answer
A change in equilibrium price may occur through a change in either the supply or demand schedules. For instance, an increase in demand through an increase level ofdisposable income may produce a new demand and supply schedule, such as the following:
Price ($) Demand Supply
8.00 10,000 18,000
7.00 12,000 16,000
6.00 14,000 14,000
5.00 16,000 12,000
4.00 18,000 10,000
3.00 20,000 8,000
2.00 22,000 6,000
1.00 24,000 4,000
Here we see that an increase in disposable income would increase the quantity demanded of the good by 4,000 units at each price. This has the effect of changing the price at which quantity supplied equals quantity demanded. In this case we see that the two equal each other at an increased price of $6.00. This increase in demand would have the effect of shifting the demand curve rightward. Note that a decrease in disposable income would have the exact opposite effect on the equilibrium market.
We will also see similar behaviour in price when there is a change in the supply schedule, occurring through changes in technological or through changes in business costs. An increase in technology or decrease in costs would have the effect of increasing the quantity supplied at each price, thus reducing the equilibrium price. On the other hand, a decrease in technology or increase in business costs will decrease the quantity supplied at each price, thus increasing equilibrium price.
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