Graphically illustrate what would happen in the market for traveler’s checks if

(a) due to a reduction in terrorist activity, families did more traveling;

(b) a bank card was introduced that rebated 1 percent of all charges to the cardholder; and

(c) the cost of issuing traveler’s checks increased.

Transcribed Image Text:

When demand in- creases from D to D' and supply decreases by a small amount (from S to S), the equilibrium quantity rises to Q' and the price rises to P. If the shift in supply is rela- tively large (a shift from S to S), the equilibrium quantity falls to Q and the price rises to p. In both cases, price rises but the effect on the equilibrium quantity depends on the mag- nitude of the decrease in supply. Figure 4.7 Simultaneous Increase in Demand and Decrease in the Supply of Life Insurance Price p2 A B 52 so Q Q Q DO D1 Quantity