3. Over the past few years in the market for solar panels, we have seen lower prices and more

panels being sold.

a) Draw a supply and demand diagram for the market, showing the initial equilibrium price and

quantity (indicated with P₀*, Q_o* on the P and Q axes respectively.)

b) What one curve (supply or demand) must have shifted, and in what direction, to cause both

a decrease in price and an increase in quantity sold in the solar panel market? Illustrate this

on your graph in part (a) (Show the new curve and the resulting new equilibrium price and

quantity (indicated with P₁*, Q₁*)

c) Briefly describe two different events that might cause the shift you described above in the

market for solar panels.

4. Suppose that there are two changes happening simultaneously in the Stockton housing market: home prices are rising, while at the same time more houses are being sold. Your friend who took an Economics class years ago is arguing that this violates the law of demand, which states that price and quantity should be negatively (inversely) related.

What important aspect of the law of demand is being overlooked? How would you explain to your friend the fact that price and quantity may increase with the law of demand still holding? Use a graph to explain your answer.

5. What is a market that you would expect to be permanently affected by the pandemic? Is the permanent effect with regard to the supply curve, the demand curve, or both? Briefly explain. There is not one right answer, but whatever your answer, please justify it.