Quizzol

QUESTION:

8. Shifts in supply or demand I

The following graph plots the market for electric guitars in Detroit, where there are always over 1,000 music stores. Suppose the Surgeon General issues a public statement saying that consuming electric guitars is good for your health.

Show the effect of this change on the market for electric guitars by shifting one or both of the curves on the following graph, holding all else constant.

Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther.

Now suppose Congress passes a tax cut that increases the income of Detroit residents.

If electric guitars are a normal good, this will cause the demand for electric guitars to .

ANSWER:

Points:

1 / 1

When consumers find out that eating electric guitars is good for your health, this causes people to increase their consumption of electric guitars. Therefore, the demand for electric guitars increases, and the demand curve shifts to the right.

Note that the supply curve does not shift because none of the factors affecting supply have changed. In particular, the supply curve shifts in response to changes in the following:

Factors Affecting Supply

•	Price of inputs
•	Production technology
•	Number of producers
•	Expectations of producers

Now suppose Congress passes a tax cut that increases the income of Detroit residents.

If electric guitars are a normal good, this will cause the demand for electric guitars toincrease Correct

Points:

0 / 1

The demand for normal goods increases when income increases; that is, an increase in income causes an increase in the demand for electric guitars. On the other hand, a decrease in income causes a decrease in the demand for the good. Because you are told that the tax cut increases the income of Detroit residents, this causes demand to increase, or shift to the right.

Posted by Cleveland on August 30, 2024