Question
please draw the diagram in each scenario below using demand and supply concepts to support the answers. Thank you. 1. Consider a two-axis diagram where
please draw the diagram in each scenario below using demand and supply concepts to support the answers. Thank you.
1. Consider a two-axis diagram where the X-axis measures the number of houses and Y-axis measures the price of houses(P). The demand curve is shown by D1 which is actually negatively sloped while the supply curve sloped upward and is shown by S1. S1 and D1 intersect at point E and the corresponding quantity is Q1 and the price is P1. Due to the pandemic, demand increased, and supply increased. The demand curve shifts parallelly rightwards from D1 to D2, and the supply curve parallelly shifts leftwards from S1 to S2. Suppose S2 and D2 intersect at point F. quantity corresponding to point F is Q2 and the price is P2. It is observable that P2 is greater than P1 and Q2 is less than Q1. Hence, the fall in supply and rise in demand for housing services leads to a rise in the prices of housing and a fall in the quantity.
2. where the x-axis shows the number of houses and the y-axis shows the price of the houses.
The demand curve (D1) is very steep(due to inelastic demand) and the supply curve(S1) is also very steep(due to inelastic supply). The equilibrium is attained when D1 and S1 intersect. It gives the equilibrium price as P* and the equilibrium quantity as Q*.
Now the demand for houses rises due to the rising earning population. This leads to a rightward shift of the demand curve from D1 to D2. This shift leads to a new equilibrium where D2 and S1 intersect. This results in a significant increase in the price level from P* to P1. and the quantity demanded falls by a very small amount from Q* to Q1.
3. where the x-axis shows the number of houses and the y-axis shows the price of the houses.
The demand curve (D1) is very steep(due to inelastic demand) and the supply curve(S1) is also very steep(due to inelastic supply). The equilibrium is attained when D1 and S1 intersect. It gives the equilibrium price as P* and the equilibrium quantity as Q*.
Now the demand for houses rises due to the rising earning population. This leads to a rightward shift of the demand curve from D1 to D2. This shift leads to a new equilibrium where D2 and S1 intersect. This results in a significant increase in the price level from P* to P1. and the quantity demanded falls by a very small amount from Q* to Q1. and now leads to falling in the demand level from D2 to D3 such that D2 is more than D1 but less than D3. As a result, the fall in demand is much lower than the rise in demand due to other factors. Hence, the price will fall but by very small amounts, that is from P1 to P2 such that P2 is less than P1 but still higher than P*.
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