In each scenario below, use a standard supply and demand diagram to analyze the given market situation. Identify the initial equilibrium price and quantity. For each shock, answer the following questions:

1. Does the supply curve or the demand curve shift, and in what direction?
2. What type of disequilibrium is caused by the shock?
3. What happens to the price?
4. What happens to the quantity, and which side of the market responds?

Clearly adapt your original diagram to illustrate the changes.

Use your work to answer True/False questions 8−13 in Canvas Quiz - HW2.

a. In the market for computers, show the effect of a decrease in the price of microchips (an important component used in the production of a computer).

b. In the market for computer software, show the effect of a decrease in the price of computers.

c. In the market for wheat, show the effect of an increase in the price of fertilizer.

d. In the market for wheat, show the effect of an early freeze that destroys a large portion of the crop.

e. In the market for insulin, show the effect of the development of a new, less expensive alternative substance for the treatment of diabetes.

f. In the market for spam (an inferior good), show the effect of consumer incomes falling due to a recession.

g. In the market for steak, show the effect of an increase in the price of chicken.

h. In the market for hamburger, show the effect of a health warning that eating red meat increases the risk of heart attack.

i. In the market for cars, show the effect of a decrease in the price of steel.

a. In the market for computers, a decrease in the price of microchips would lead to an increase in the supply of computers. The supply curve shifts to the right, resulting in a lower equilibrium price and a higher quantity of computers. This is a case of excess supply or a surplus in the market.

b. In the market for computer software, a decrease in the price of computers would increase the demand for software. The demand curve shifts to the right, leading to a higher equilibrium price and quantity of computer software. This is a case of excess demand or a shortage in the market.

c. In the market for wheat, an increase in the price of fertilizer would raise production costs for farmers, leading to a decrease in the supply of wheat. The supply curve shifts to the left, resulting in a higher equilibrium price and a lower quantity of wheat. This is a case of excess demand or a shortage.

g. In the market for steak, an increase in the price of chicken (a substitute for steak) would lead to an increase in the demand for steak. The demand curve shifts to the right, resulting in a higher equilibrium price and quantity of steak. This is a case of excess demand or a shortage.

h. In the market for hamburger, a health warning about red meat increasing the risk of heart attack would decrease the demand for hamburger. The demand curve shifts to the left, leading to a lower equilibrium price and quantity of hamburger. This is a case of excess supply or a surplus.

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